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fomc | 2,008 | Thank you, Mr. Chairman. I support your proposal for a 75 basis point cut and the language that's proposed for alternative A. As I said in my comments, I'm very concerned about economic growth and agree basically with the Greenbook perspective. I think we are into an adverse feedback loop, and I agree with the Bluebook... | 502 |
fomc | 2,008 | Thank you. Governor Kohn. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I also support your proposal, both the action and the language of alternative A. I think it's an appropriate response to the developing situation, and I do think that the language will help us on the inflation front. Let me elaborate a bit. We've had a marked deterioration in the outlook, as ev... | 341 |
fomc | 2,008 | Thank you. President Evans. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. I support your recommendation. I came in here thinking that I preferred 50 basis points, but I also recognize that I expected that we would have to go beyond that after this meeting. So I fully support 75 and the language that you discussed. I just want to take a minute to give my perspective o... | 432 |
fomc | 2,008 | Thank you. President Stern. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. Well, as somebody said recently, there are no altogether good choices. I strongly support the recommendation and the language that goes with it. A couple of weeks ago I thought the funds rate probably should go to 21/2 percent. I got there basically by saying, well, given what I know about curr... | 281 |
fomc | 2,008 | Thank you. President Fisher. | 6 |
fomc | 2,008 | Well, Mr. Chairman, I don't like being obtuse and, being a people person, I don't like being unpopular. But I-- | 28 |
fomc | 2,008 | We're always going to love you, come on. [Laughter] PARTICIPANT. We don't like being unpopular either. PARTICIPANT. Happy birthday! [Laughter] | 36 |
fomc | 2,008 | I just can't bring myself to go that far, Mr. Chairman. I listened very carefully to what was said at the table, and implicit in Tim's question to me was, Would you be willing to do something? The answer is "yes," but not as much as you're suggesting. I try as hard as possible, even though I've made my living in financ... | 384 |
fomc | 2,008 | You mean Pizza the Hutt, not Jabba the Hutt. [Laughter] | 18 |
fomc | 2,008 | Pizza the Hutt, that's right. Vice Chairman Geithner made a very interesting point, and that was that we have to be very careful about how we talk about inflation and even saying what we think. What worries me about going down alternative A's path, if that's the wisdom of the Committee, is that the second paragraph say... | 340 |
fomc | 2,008 | Always a pleasure. [Laughter] President Lockhart. | 12 |
fomc | 2,008 | Thank you, Mr. Chairman. I came to the meeting preferring alternative B--50 basis points. I certainly can bring myself to support your proposal--75 basis points. I don't view it as a fist pounder, but let me make the case for 50 basis points, at least as I think about it. First, I do think it is a movement that acknowl... | 308 |
fomc | 2,008 | Thank you. President Pianalto. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I support your recommendation. As I said earlier, I do see the risks to the Greenbook baseline as being skewed to the downside because of the absence of any signs of a bottoming out in the housing market. As others have mentioned, I am concerned about the risk that we will have a more protracte... | 186 |
fomc | 2,008 | Thank you. First Vice President Sapenaro. | 10 |
fomc | 2,008 | Mr. Chairman, excluding for the moment the market's expectations of a significant downward policy move at this meeting, I have a strong preference for alternative D, like President Hoenig. I see widespread evidence that the upside risk to inflation has increased appreciably, as evidenced by rapid money growth, a deprec... | 246 |
fomc | 2,008 | Thank you. President Plosser. | 8 |
fomc | 2,008 | Thank you, Mr. Chairman. As I mentioned in my first go-round, and like Rick, I have been terribly depressed on multiple dimensions about what is going on and have struggled mightily in trying to think about what appropriate policy is going forward and, as President Lacker suggested, about what our strategy is as we mov... | 623 |
fomc | 2,008 | Thank you. Governor Warsh. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. A couple of quick introductory points. First, I have total confidence in the Fed and the FOMC, certainly over the course of my couple of years here, in effectively handling these challenges, which is key to highlight at the outset of my remarks. I have total confidence in this institution's abi... | 793 |
fomc | 2,008 | Thank you. Governor Kroszner. | 9 |
fomc | 2,008 | Thank you. Obviously, as I said before, we are in a very uncertain situation with respect to inflation. We have slowing economic growth, but we have also had very elevated prices. We had a very low unemployment rate and a very low rate of wage inflation, so we have to worry a little about whether we will get the benefi... | 679 |
fomc | 2,008 | Governor Mishkin. | 4 |
fomc | 2,008 | Thank you, Mr. Chairman. Obviously, we are facing a very difficult policy problem, and that is why, Charlie, we will go have a beer later, so that we can deal with our depression. | 42 |
fomc | 2,008 | How about two? | 4 |
fomc | 2,008 | Yes, maybe two. Clearly, we are challenged by the fact that we have to balance the risks of both underlying inflation and inflation expectations going up. Against that, we have to worry about the downside risks to the economy, and the financial sector could really go south. So that is really the policy problem that we ... | 939 |
fomc | 2,008 | Thank you. Vice Chairman. | 6 |
fomc | 2,008 | Let me just begin with a question because I think it is really central. It goes to the issue of how accommodative policy is now. Fundamentally that must be critical to the magnitude of the risks we are taking that we are going to get it wrong and inflation in the future is going to be too high. Now, I am not really par... | 94 |
fomc | 2,008 | What chart is that? | 5 |
fomc | 2,008 | This is the Bluebook equilibrium real funds rate chart. But any way you look at it, the real fed funds rate is closer to best estimates of equilibrium than during any downturn of the past two decades or similar periods of time. There is no gap between the estimated real rate today and the center of the estimate of wher... | 798 |
fomc | 2,008 | May I just ask a question back? I do think that inflation expectations are a concern. It is just a question of how the markets--and I am not as good at this as the people who really follow the markets--and the press will react to this phrase because I think that the amount of movement here is still very small. You know... | 177 |
fomc | 2,008 | President Fisher, I think I agree on the last sentence. I would like to keep it something that we have used frequently before and that emphasizes, in fact, the symmetry of the dual mandate. Are there other thoughts on either the indicators of inflation expectations or the list of reasons that anyone would prefer to cha... | 66 |
fomc | 2,008 | On inflation expectations, because they haven't risen very much, I agree with President Geithner. I like the fact that we tell people we are aware, but we could say "have edged higher" or something like that instead of "risen." | 50 |
fomc | 2,008 | We could use my "smidgen" word, but "edged higher" is better. | 20 |
fomc | 2,008 | Went up a smidge. | 6 |
fomc | 2,008 | All right. President Evans. | 6 |
fomc | 2,008 | "Edged higher" is an unusual phrase. | 10 |
fomc | 2,008 | "Have risen somewhat"? | 5 |
fomc | 2,008 | I think an issue with "edged higher" is that it really does sound as though you have some very specific measures in mind. | 27 |
fomc | 2,008 | Brian, do you have a thought on "risen" versus "risen somewhat" versus taking it out? | 23 |
fomc | 2,008 | I think if you take it out that very much raises the question of what to do with that language in red about the factors that would push inflation down. It would be tough to drop the inflation expectations thought and not have inflation expectations mentioned anywhere in the paragraph. There would just be vacant space w... | 72 |
fomc | 2,008 | Anyone else? Bill. | 5 |
fomc | 2,008 | Adding just the word "slightly"--"risen slightly"--gets to your point. | 18 |
fomc | 2,008 | "Slightly" or "somewhat" risen. | 11 |
fomc | 2,008 | Brian, does "somewhat" mitigate it a little, or does that highlight it? | 18 |
fomc | 2,008 | I'm not sure. I mean, in my mind it mitigates it. | 15 |
fomc | 2,008 | Somewhat. | 3 |
fomc | 2,008 | Is "slightly" better than "somewhat"? | 11 |
fomc | 2,008 | "Somewhat" is bigger than "slightly." | 11 |
fomc | 2,008 | That is 50 versus 25 in the old days. | 12 |
fomc | 2,008 | Mr. Chairman, if I understand the discussion about this, when you say "some indicators have risen somewhat," you are getting into territory that seems sort of mealy-mouthed. | 37 |
fomc | 2,008 | Right. | 2 |
fomc | 2,008 | "Risen a little"? | 6 |
fomc | 2,008 | What is wrong with "slightly"? | 8 |
fomc | 2,008 | All right. President Hoenig? | 7 |
fomc | 2,008 | Mr. Chairman, I don't want to prolong this too much, but in response to the Vice Chairman's comments, I am not sure I follow what you are saying. I think the model that you showed us, in terms of where the equilibrium rate is, is a short-term model. It is based upon a variety of estimates and output gaps, and I think t... | 150 |
fomc | 2,008 | Let me say for the record that I agree with everything you just said. My only point is that there is no surprise that we disagree or that it is complicated and we have a different view of the balance. If anything, what this chart shows is how broad the range of uncertainty is around this. That was part of my point in s... | 158 |
fomc | 2,008 | Vice Chairman, we have a bubble developing in some parts of our area. I think they are aware of that, and so I think we have to be mindful of that in our discussion more broadly. That is why I think there are important differences that we should necessarily be able to--and should in fact--acknowledge publicly. | 67 |
fomc | 2,008 | Okay. Having thought about this, I think that "some indicators" does tone it down a bit. Perhaps we could just leave it where it is? Who knows what reaction this will get. Again, there is some sense here of trying to ratchet up at least our verbal attention to inflation. Let me say to everyone that I went through each ... | 163 |
fomc | 2,008 | The vote will encompass the directive I'll read from the Bluebook and the statement for alternative A in the chart that you have in front of you. "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 ... | 131 |
fomc | 2,008 | Thank you. We are going to recess for the discount rate. Unless there are objections, we are going to maintain the 1/4 percentage point difference. [Recess] | 36 |
fomc | 2,008 | Okay. The next meeting is April 29 and 30, Tuesday and Wednesday, a two-day meeting. We will talk about interest on reserves. And we will meet you shortly upstairs for a lunch in honor of Bill Poole. The meeting is adjourned. | 54 |
fomc | 2,008 | Let's formally begin the meeting. Let me start by welcoming our new colleague, Jim Bullard from St. Louis, over there in the heartland section of the table. [Laughter] We welcome you, and we look forward to your contribution and to working with you. I want just to note that there has been some interest in doing more wo... | 151 |
fomc | 2,008 | 1 Certainly. Thank you, Mr. Chairman. The financial market environment has improved markedly since mid-March. However, concern about the circumstances that led to the demise of Bear Stearns may have provided added impetus to the ongoing deleveraging process. The result has been improvement in the broader equity and fix... | 3,057 |
fomc | 2,008 | Thank you. Let's have questions for Bill on financial markets, and then we will come back to a full discussion of the proposed actions. Questions for Bill? No questions? That is unusual. Yes, President Lacker. | 44 |
fomc | 2,008 | About consumer-loan-backed securities, spreads have widened and delinquencies and defaults have increased, but not out of line with past experience. You seem to have inferred that spreads have widened more than is warranted by the return on those securities. I would be interested in what computational exercises or what... | 80 |
fomc | 2,008 | I am not so much saying that they are not warranted. I am saying that the spreads have widened a lot relative to the actual experience, given that we are in a period of weaker economic growth. The stress seems to be more on the spreads that the market is demanding for these assets as opposed to a deterioration in the u... | 76 |
fomc | 2,008 | Other questions? If not, let me just say a word or two about the proposed liquidity measures. First, as Bill noted, the interbank and short-term funding markets remain under some stress. In particular, as you know from the picture, the spreads in the dollar interbank market have gone above the U.K. and ECB markets. Alt... | 1,346 |
fomc | 2,008 | I think the political concern you raised and described is a very, very serious one for this institution. Even if we thought of this ourselves before Senator Dodd and others wrote to us--and apparently it is true that we did--we are never going to be able to convince a broad array of observers that this was not a direct... | 412 |
fomc | 2,008 | President Hoenig. | 4 |
fomc | 2,008 | A question--and just remind me--if we bring the student loans and these other assets in under this facility, do we have the right to swap out if the rating changes or questions come up? | 40 |
fomc | 2,008 | Yes. They are priced every day; and if they are downgraded, there will be an automatic substitution. So you are protected both on price and on the ability to substitute. | 37 |
fomc | 2,008 | That was my first question. The second is that we have been entangled before in appearance issues. If we feel that we are doing the right thing, that doesn't give me much concern. On the substance, do you judge that the tightness in the market is such that this action is necessary to facilitate liquidity, or will this ... | 116 |
fomc | 2,008 | Well, I think the honest answer is that we don't really know exactly where it is on the continuum of very modest to substantive. One thing we can say is that this should increase the demand at the TSLF auction, so it should increase the likelihood that more of the Treasuries are actually put into the market in exchange... | 93 |
fomc | 2,008 | Vice Chairman. | 3 |
fomc | 2,008 | I want to say just one thing in this context. The Chairman alluded to this, too. I think there is some value in taking this opportunity now to try to get a better balance in the relative attractiveness across these facilities. So in the scheme of things, it is better for us for the auction type of facilities to be rela... | 510 |
fomc | 2,008 | President Rosengren. | 5 |
fomc | 2,008 | Well, I certainly agree with the last statement that we should do what makes sense, and in this case, differentiating between kinds of collateral that are all AAA doesn't make sense to me. We should broaden it out. I would say that in your presentation you didn't have the asset-backed commercial paper market, but those... | 203 |
fomc | 2,008 | President Lacker, a two-handed comment? | 9 |
fomc | 2,008 | Yes. Mr. Chairman, you motivated the expansion of the term securities lending facility by the effect it would have by increasing the amount of Treasuries in the market. Vice Chairman Geithner, you appealed to the effect it would have on the asset-backed securities that would be offered on the market. We didn't discuss ... | 156 |
fomc | 2,008 | I may have misspoken, but I think I had in mind both sides of the equation. The Treasuries have certainly responded. It's harder to judge on the asset side, but I guess that the premise is the same--that all of these markets are suffering from withdrawal of the normal liquidity provision of money market mutual funds an... | 102 |
fomc | 2,008 | If I may come back to the issue of the AAA securities and the spreads, those are AAA-rated securities for which the spread has widened hundreds of basis points. If the loss experienced is not unusual relative to the cycle, then it's hard to understand why AAA-rated securities would be selling at several hundred basis p... | 74 |
fomc | 2,008 | Yes. | 2 |
fomc | 2,008 | If the payoff for those securities is unexpectedly low, it is likely to happen in a circumstance in which the economy is doing awfully poorly. Risk premiums are about variances and risk aversion, but they are also about correlation with aggregate states. Arguably, that would rationalize a widening of the risk premiums ... | 131 |
fomc | 2,008 | Well, we have seen the breakdown of a particular structure of lending that was based on the credit ratings. The credit ratings have proven to be false. Therefore, there is an informational deficit--an asymmetric information problem, would be my interpretation--which has, in turn, triggered a massive change in preferenc... | 79 |
fomc | 2,008 | Thank you, Mr. Chairman. The question that I have gets to the appearance issue, and it is not really about the immediate concerns. To the extent that the markets are not functioning that well, this could be useful, and so I don't really have any disagreement with that. But the facilities that we are talking about curre... | 200 |
fomc | 2,008 | The TSLF and the PDCF are emergency measures, and barring congressional action, we cannot maintain them. Presumably, they will be phased out as markets improve. If we are doing these things, I don't see the argument for one set of collateral versus another. President Fisher. | 58 |
fomc | 2,008 | Along those lines, Mr. Chairman, I viewed these facilities as a liquidity bridge, an aqueduct, to getting over this credit crunch that we have had. I am not as concerned about having this facility accept the same collateral as the other facilities. I do have a question about the permanence, and it is a different kind o... | 261 |
fomc | 2,008 | Yes. | 2 |
fomc | 2,008 | So $75 billion auctions. Okay. The third point, which is about optics, is a little different. I don't know what we're going to come out with in terms of policy. I know what my preferences are, and I sense what some other people's preferences are. I'm a little concerned that we have to be able to express this in a way t... | 376 |
fomc | 2,008 | President Fisher, the timing is dictated by the preference of the Europeans not to be tied into our monetary policy decision and the fact that Thursday is a European holiday. The problem you were alluding to earlier had to do with the very strong market expectation that we were going to act on liquidity measures. We di... | 152 |
fomc | 2,008 | Mr. Chairman, may I just raise one other point? I think President Lacker touched on this. I am concerned, in terms of the eventual optics, about the fact that the TAF is being drawn on predominately by foreign banks. My numbers here are that the last one was 78 percent foreign bank participation and the previous one wa... | 116 |
fomc | 2,008 | The problem is that European banks are structurally deficient in dollars and they have a time zone shift. It is a dollar market. | 26 |
fomc | 2,008 | It has been well presented. It's hard to explain to a politician. That's my point. | 18 |
fomc | 2,008 | Governor Kohn. | 4 |
fomc | 2,008 | Thank you, Mr. Chairman. On the last point, I think it is helpful to expand both the swaps and the TAF at the same time. People understand that there are pressures in these funding markets, and we can address them both at home and abroad. They do feed back on our market, so I guess I am not too worried about that one. ... | 354 |
fomc | 2,008 | Okay. President Bullard. | 6 |
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