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fomc | 2,008 | A quick question on fiscal policy, both domestic and international. Being struck, Ms. Kole, by your verbs "whacked" and "disintegrated"--very forceful language--what are your assumptions about fiscal policy in terms of staff projections, first, for the domestic economy and, second, for other economies? That's the quest... | 69 |
fomc | 2,008 | Right now, although the odds are that there will be a fiscal package next year, it is not a feature of the baseline forecast. We discussed two alternative simulations for different packages, but additional fiscal stimulus is not a feature of the baseline. | 48 |
fomc | 2,008 | We made a deliberate decision in constructing the forecast, given the enormous uncertainty about both the size and the composition of those fiscal packages. We had so many moving parts in our baseline forecast that we wanted to present you with that and then show you what the consequences might be, first, of a stimulus... | 222 |
fomc | 2,008 | I think that in many of the major foreign countries there is room for fiscal stimulus. That may be a bit of an upside risk to our forecast because, for example, China has already put some things in place. They have increased exporter rebates, and they are also putting more money into homebuilding and trying to prop up ... | 145 |
fomc | 2,008 | So it's possible that we might have marginally higher rates of growth than-- | 15 |
fomc | 2,008 | Right. I think that the United Kingdom, too, is expanding fiscal policy. Europe hasn't really announced much yet, but perhaps they will do more as well. | 32 |
fomc | 2,008 | The second thing goes back to this business of the judgmental effects of financial market turmoil. Do you have any concern that the financial turmoil may have reduced the marginal effectiveness of changes in the funds rate? In other words, if you think in my simple way of a patient on the operating table, we have an IV... | 154 |
fomc | 2,008 | The answer to that is "yes"--it is certainly possible. Obviously, it is very difficult to separate things that might actually have changed the transmission channel of monetary policy from just big financial developments that have offset the beneficial effects of easing policy. We built an assumption into the baseline f... | 176 |
fomc | 2,008 | Okay. Why don't we take fifteen minutes for coffee, and then we'll do part of the go-round. Thank you. | 24 |
fomc | 2,008 | Well, why don't we turn part of our dinner period to the go-round. Let's start with President Lockhart. | 23 |
fomc | 2,008 | Thank you, Mr. Chairman. Most of the anecdotal information from the Sixth District is consistent with the downbeat picture that has been emerging in the national data. The sentiment of directors and their contacts has turned decidedly more pessimistic regarding current economic conditions and the near-term outlook. Ban... | 393 |
fomc | 2,008 | Thank you. President Fisher. | 6 |
fomc | 2,008 | Mr. Chairman, I think it is clear that inflation has been rolled over by the steamroller of the credit crisis. I am not going to belabor what I have heard from the CEOs I have spoken to. Basically, the best summary is that things have gone from interesting to unbelievable. We have had an implosion of economic activity.... | 484 |
fomc | 2,008 | Well, I for one will certainly give my response to that at the appropriate time, and we need to hear from everybody. But everyone is obviously free to talk about whatever they want to talk about. President Yellen. | 44 |
fomc | 2,008 | Thank you, Mr. Chairman. In the run-up to Halloween, we have had a witch's brew of news. Sorry. [Laughter] The downward trajectory of economic data has been hair-raising--with employment, consumer sentiment, spending and orders for capital goods, and homebuilding all contracting--and conditions in financial and credit ... | 1,467 |
fomc | 2,008 | Thank you. President Evans. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. In spite of the fact that I am going to validate what President Fisher said in terms of content, I am reminded of what candidate Ronald Reagan said in 1980 against George Bush. To paraphrase, "I paid for the plane ticket down here. I'm going to tell you what I learned." [Laughter] Pessimism is ... | 1,202 |
fomc | 2,008 | Thank you. President Lacker. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. Business and consumer sentiment in the Fifth District has deteriorated markedly. Even though economic conditions were already decelerating heading into our September meeting, a discrete shift in outlook seems to have occurred. It seems to me to have originated during the week of September 15 or... | 1,203 |
fomc | 2,008 | Thank you. President Rosengren. | 8 |
fomc | 2,008 | Thank you, Mr. Chairman. While the LIBOR-OIS spread has narrowed somewhat, the mutual fund industry is no longer experiencing waves of redemptions, and commercial paper market conditions have improved, we're still not back to the short-term credit conditions that prevailed before the failure of Lehman Brothers. This ou... | 403 |
fomc | 2,008 | Nice job, Dave. [Laughter] | 9 |
fomc | 2,008 | I think that just offset the decline that had happened since the time we finished the Greenbook. [Laughter] | 23 |
fomc | 2,008 | --I would say that I'd be surprised by that outcome. There are several looming financial problems that are likely to affect financial markets. Bill Dudley highlighted the one that I think is the biggest for me, which is that the NAV (net asset value) triggers for hedge funds will be a significant problem in the fourth ... | 332 |
fomc | 2,008 | Thank you. President Hoenig. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. Let me just briefly say that, in our region, we have continued to do actually better than the national average, but that is beginning to wane. We are seeing, obviously, the energy effect show itself as rigs are being put out of production and you see a slowing there. We are seeing some concerns... | 601 |
fomc | 2,008 | Thank you. President Plosser. | 8 |
fomc | 2,008 | Thank you, Mr. Chairman. I'm not going to say much about the District conditions. In the Third District, as many of you have noted, they've weakened considerably. I will make just a couple of observations that I think might be pertinent. Our last Business Outlook Survey, the one that was released a week ago, had actual... | 1,516 |
fomc | 2,008 | I have a question about the potential output view. So you would also have to argue that the natural rate of unemployment is higher because of this. | 29 |
fomc | 2,008 | Yes. | 2 |
fomc | 2,008 | You think that's plausible? I mean, I understand why productive capacity would be affected, but why do you-- | 22 |
fomc | 2,008 | Well, I don't like the NAIRU, but in my baseline forecast, my natural rate of unemployment is higher than what the Greenbook has. | 30 |
fomc | 2,008 | But it rises because of the financial situation. I see. | 12 |
fomc | 2,008 | Yes, right. | 4 |
fomc | 2,008 | If I could, Mr. Chairman, in the dynamic stochastic general equilibrium models, one of which I understand has been adopted by the staff for use in forecasting, employment fluctuates with shocks to productivity, and it's the natural correspondent to that. So in some sense the unemployment rate rises because the natural ... | 104 |
fomc | 2,008 | Employment fluctuates, but to get unemployment you need a richer picture of matching, or something like that. | 21 |
fomc | 2,008 | Right. You need some matching model, and you get intersectoral flows. You get the same thing. | 22 |
fomc | 2,008 | But even in my steady state, if I view this as a permanent inefficiency in financial intermediation that changes things, the unemployment rate is a little higher. | 33 |
fomc | 2,008 | President Stern. | 3 |
fomc | 2,008 | Thank you, Mr. Chairman. I'll start with a few comments about the District economy, which will sound pretty familiar by now. The preponderance of the anecdotes from business contacts that I've talked with since our last meeting have been distinctly negative. It's not just a slowing of activity or some deterioration but... | 694 |
fomc | 2,008 | Okay. President Pianalto. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. I concur with the view that we face a very serious situation. In most respects I agree with the Greenbook baseline projection, with the reasoning that the Board staff used to arrive at the projection, and with their view that the risks to growth are to the downside. Like the Greenbook projectio... | 684 |
fomc | 2,008 | Thank you. President Bullard. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. Economic conditions in the Eighth District have deteriorated since the September Beige Book. Citing weak demand and higher input costs, a variety of manufacturing firms throughout the District reported job cuts and plant closings. The decline in manufacturing activity has been concentrated in f... | 883 |
fomc | 2,008 | Thank you. Well, it's a little after 6:00 p.m., a long afternoon. Why don't we recess the meeting until tomorrow morning? There's a reception and a dinner up on the terrace, which is for your convenience. There's no business being conducted, and we'll see you in the morning. Thank you. | 64 |
fomc | 2,008 | Good morning, everybody. PARTICIPANTS. Good morning. | 12 |
fomc | 2,008 | We have some data this morning. Dave, would you like to discuss this? | 16 |
fomc | 2,008 | 6 Yes. You have at your place a table on orders and shipments of durable goods, one of the more inscrutable releases to actually make sense of, but the bottom line is very little effect on our basic outlook here. As you can see in that second set of numbers, the shipments area excluding the aircraft line was up 2 perce... | 202 |
fomc | 2,008 | Does the resolution of the Boeing strike have any macro implications? | 12 |
fomc | 2,008 | We actually predicted that the strike would end this week. It did. | 14 |
fomc | 2,008 | My, you're good. | 5 |
fomc | 2,008 | It wasn't looking too good last week. [Laughter] But we're expecting that it would provide a small rebound effect on first-quarter GDP growth. It's going to take a little while to get production back on track here. | 44 |
fomc | 2,008 | Other questions for Dave? Okay. If not, let's continue with our go-round. Vice Chairman. | 20 |
fomc | 2,008 | Thank you, Mr. Chairman. We expect a recession at least as bad as the 1990-91 recession, with a significant risk of a deeper, more protracted downturn worse than the '80s, and a very substantial rise in the unemployment rate. Inflation is decelerating quickly, and deflationary forces are ascendant around the globe. The... | 1,329 |
fomc | 2,008 | Thank you. Governor Kohn. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. A number of the presentations yesterday talked about falling off a cliff in the middle of September. I think we need to remind ourselves that we were sliding downhill pretty fast before we hit that cliff. The third-quarter data, which aren't really affected by what happened in the last two week... | 1,519 |
fomc | 2,008 | Thank you. Governor Warsh. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. The first sentence of the Greenbook said that "recent economic and financial news has been dismal"; and the last sentence on page 1 of the Bluebook said that "markets generally remain extremely illiquid and volatile." I can't do better than that, but I can certainly do worse; so let me give tha... | 1,348 |
fomc | 2,008 | Thank you. Governor Kroszner. | 9 |
fomc | 2,008 | Thank you. Well, the autumnal bonfires have really sort of heated up since the last FOMC meeting. I think we have evidence in the United States and now worldwide of what emerging market literature calls "sudden stops"--a sudden stopping of the flow of capital, the so-called flow of hot money, into Latin America or othe... | 1,262 |
fomc | 2,008 | Thank you. Governor Duke. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. I focused on the "more rapid financial recovery" scenario, not so much because I thought it was the most likely but just trying to think what it would take to bring that about. I'm not sure that the policy changes we have done recently will do that, but I am fairly certain that we are going to ... | 1,451 |
fomc | 2,008 | President Fisher. | 3 |
fomc | 2,008 | Mr. Chairman, I would like to ask Governor Duke a question. Do you sense in this deep dive into the institutions that you talked to that they are benefiting from cuts in the fed funds rate? Are they enthusiastic or not about the prospect for a lower fed funds rate? | 55 |
fomc | 2,008 | Actually, I have heard a couple of reports that, when we did that last 50 basis point cut, banks did not lower their prime. A lot of banks still have prime-related credits. As we lower the rates, whether it makes a difference on anything else, it affects the prime, and there are still an awful lot of 5 percent CDs out ... | 98 |
fomc | 2,008 | Mr. Chairman? | 4 |
fomc | 2,008 | President Lacker. | 4 |
fomc | 2,008 | I would just echo that. I have heard the same thing from bankers in our District--just vociferous complaints about lowering rates because their loan rates go down but their cost of funds doesn't. | 39 |
fomc | 2,008 | Mr. Chairman, if I could just add one other thing. We are hearing more and more about people switching to LIBOR, trying to shift their lending contracts to LIBOR rather aggressively, obviously, because they are higher rates. But I'm wondering if you're picking that up as well. | 57 |
fomc | 2,008 | Well, I don't know. But just as soon as they get them switched over there, maybe we'll be successful at bringing LIBOR down. | 28 |
fomc | 2,008 | Okay. Thank you. Let me try to summarize all that I heard today and yesterday, and then I'll try to add some new comments to that. The outlook for economic growth appears to have deteriorated quite significantly since the last meeting. Data on consumer spending, production, and employment had weakened more than expecte... | 2,584 |
fomc | 2,008 | 7 Thank you, Mr. Chairman. I will be referring to the version of table 1 that was distributed to you on Monday. It is reproduced in the package before you labeled "Material for Briefing on Monetary Policy Alternatives." Changes in the language relative to the Bluebook version are shown in blue. Starting on the right-ha... | 1,321 |
fomc | 2,008 | Thank you. Questions for Brian? All right. If there are no questions, why don't we begin our go-round. President Lockhart. | 28 |
fomc | 2,008 | Thank you, Mr. Chairman. I think that this is a tough call. I support alternative B, with the statement wording as presented. In my thinking, a 25 basis point cut today is part of a total 75 basis point action, including the October 8 move. I believe the deterioration we have seen in September and October and the resul... | 266 |
fomc | 2,008 | Thank you. President Yellen. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I favor alternative A, a 50 basis point cut in the funds rate. This action, and even more, is justified by the dramatic developments since our last meeting--a deepening of the recessionary outlook worldwide, the near meltdown of the global financial system, and the abatement of inflationary pre... | 443 |
fomc | 2,008 | Thank you. Governor Kohn. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. Like President Yellen, I support alternative A, the 50 basis point cut. I think it's the right response to the very, very substantial change in the economic outlook since the last meeting. We would have cut the nominal federal funds rate by 1 percentage point and real federal funds rates by som... | 1,211 |
fomc | 2,008 | Thank you. President Rosengren. | 8 |
fomc | 2,008 | Like the Greenbook forecast, our forecast predicts a significant recession. Further easing will likely help mitigate the severity of the recession. Coupled with improvements in short-term credit spreads, a reduction in the federal funds rate should lower rates on home equity lines of credit as well as business and cons... | 225 |
fomc | 2,008 | Okay. Thank you. President Evans. | 8 |
fomc | 2,008 | Thank you, Mr. Chairman. After thinking about this for quite some time, I cannot convince myself that alternative A is not the right way to go. | 31 |
fomc | 2,008 | Let the transcript reflect that. [Laughter] | 10 |
fomc | 2,008 | You were very effective in listing a number of dire circumstances. The fact that we may challenge the maximum duration of a recession in the postwar period, any mention of the 1981-82 recession is very frightening, you even mentioned 1975 in terms of the reduction in confidence, and the 1980 credit crunch also--you wer... | 346 |
fomc | 2,008 | President Hoenig. | 4 |
fomc | 2,008 | Well, Mr. Chairman, I certainly understand how serious this matter is, and I guess I am of the view that alternative A is not going to solve much. There is a psychology, I understand, in the market that is going on, and I am not convinced that our continuing to take these actions and then having adverse outcomes is nec... | 396 |
fomc | 2,008 | Thank you. President Plosser. | 8 |
fomc | 2,008 | Thank you, Mr. Chairman. Clearly, forecasts have been marked down since our September meeting--mine included. This reflects the weaker data that we have obtained on the real side, especially consumer spending and manufacturing, but also worsening conditions in the financial markets. Accordingly, in an intermeeting move... | 1,544 |
fomc | 2,008 | Thank you. President Bullard, you have a handout? | 13 |
fomc | 2,008 | I do have a handout. | 7 |
fomc | 2,008 | Everybody have a copy? President Bullard. | 9 |
fomc | 2,008 | 8 Thank you, Mr. Chairman. I guess before I start, I just want to say that I generally agree with everything everyone is saying. This is a dire situation, and I am perfectly comfortable with that assessment. What I want to do with my comment here is just put on the table one idea about why a rate reduction might be cou... | 1,223 |
fomc | 2,008 | Thank you. Let's see, President Fisher. | 9 |
fomc | 2,008 | Mr. Chairman, if you had kicked around in the streets of Hong Kong in 1997, then you would have wandered into elementary schools and seen what we called at that time "Quotrons"--children trading stocks on the lunchroom floor. It was the surest indicator that the market was out of control. This morning I opened the Wall... | 805 |
fomc | 2,008 | President Fisher, I promised you answers, and I will deliver them. President Pianalto. | 18 |
fomc | 2,008 | Thank you, Mr. Chairman. I strongly favor alternative A, a 50 basis point cut in our fed funds target rate today. I think it is important for us to move aggressively and quickly to offset the strong forces that are acting to depress economic activity. I know that some prefer a more measured response, especially as we m... | 100 |
fomc | 2,008 | Thank you. President Lacker. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. The economic outlook has definitely deteriorated. On top of the slowing at the beginning of the third quarter, a sequence of policy actions and statements has spread an inchoate fear. In response to that, a wide variety of economic agents have delayed outlays. The breathtaking credit market int... | 842 |
fomc | 2,008 | Just to support what you said, we are obviously still trying to find our way in how to use this in the new regime with the excess reserves interest rate. It is possible that at some point we might decide to target that interest rate. That might be the most straightforward thing to do. But as I understand it--and, in fa... | 244 |
fomc | 2,008 | Thank you, Mr. Chairman. Well, financial headwinds continue to be a major part of my thinking about the economic outlook. Reasonable people can differ about that issue, but it seems to me that the headwinds are significant and they are likely to persist. Partially as a consequence and partially for other reasons, the e... | 330 |
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