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fomc | 2,008 | That is a very good question. We don't have any models to draw on because we don't have any data that would allow us to uncover a structural relationship between spreads and the quantity of the base. In any event, even were we to focus solely on our primary objectives for growth and inflation, I think we would have tro... | 184 |
fomc | 2,008 | President Plosser. | 5 |
fomc | 2,008 | Thank you, Mr. Chairman. I, too, want to add my praise to the staff. It was an extraordinary set of memos, as Jeff indicated, making reasonably clear very difficult literature on a complex topic. So I want to thank them. Reading through them was very helpful to me in trying to sort out some of my own views as well. As ... | 2,323 |
fomc | 2,008 | Thank you. President Yellen. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. This is an extremely important discussion, and I am glad that you have arranged a special session. I very much appreciate the comprehensive and outstanding memos from the staff. At our October meeting, we agreed to take whatever steps were necessary to support the recovery of the economy, and t... | 1,802 |
fomc | 2,008 | Thank you. President Bullard. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I also want to thank the staff for preparing these memos. They are very stimulating, a great discussion of a very difficult topic, and I know it was a lot of work. I also want to agree with the Chairman that all comments in this arena are in the spirit of optimal monetary policy, which is the o... | 2,782 |
fomc | 2,008 | Thank you. Why don't we take fifteen minutes for coffee and then come back and continue. | 18 |
fomc | 2,008 | President Hoenig, whenever you are ready. | 9 |
fomc | 2,008 | All right. Thank you, Mr. Chairman. I would like to start off also by saying how much I appreciate this. I think it is an important opportunity for us not necessarily to agree--because committees are designed to bring different views together and, one hopes, to come to consensus--but to hear one another and to feel mor... | 1,565 |
fomc | 2,008 | Thank you. President Lockhart. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I add my thanks to the staff for the excellent summaries, particularly those that covered the Japanese experience. My reading of that experience argues for acting aggressively and moving directly to whatever lower bound we consider the effective minimum. The economic outlook has deteriorated sh... | 1,673 |
fomc | 2,008 | Thank you. President Evans. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. I, too, would like to add my thanks to the staff for an excellent set of memos--very good analysis. I would agree with pretty much everyone that the economic outlook and financial stress warrant further relief for financial conditions, so I am going to be supporting, ultimately, further quantit... | 1,305 |
fomc | 2,008 | Thank you. Governor Kohn. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I want to join the others in thanking the staff for their work. These are very difficult issues, and I think you have brought to bear a lot of what little information we have on these subjects and have kind of kept me out of trouble for the last week. My wife thanks you as well. [Laughter] I th... | 2,412 |
fomc | 2,008 | Are you in charge of drafting it? [Laughter] President Stern. | 15 |
fomc | 2,008 | Thank you, Mr. Chairman. Let me make some comments, first about nonstandard policies, then about communication, and finally a bit about the balance sheet, governance, and so forth. With regard to the nonstandard policies, Bill Dudley's charts 24 and 25 showing the spreads narrowing with intervention and spreads tending... | 749 |
fomc | 2,008 | President Rosengren. | 5 |
fomc | 2,008 | I would also like to join the chorus of people thanking the staff, in particular the staff members who were working on the memos on Japan. Having done some work on Japan myself, I know that getting the institutional details right is far from easy, particularly when you are not a native speaker. So I much appreciated th... | 1,133 |
fomc | 2,008 | Thank you. President Pianalto. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I also want to start by thanking the staff for the excellent background materials they provided. While I certainly wish we were not in this circumstance, I do think that this is a critical conversation for us to be having at this meeting, and the background materials were extremely helpful. I a... | 1,005 |
fomc | 2,008 | Thank you. First Vice President Cumming. | 9 |
fomc | 2,008 | Thank you. Again, I'd also like to thank the staff for the excellent notes. It's useful to start out with our near-term goals, as most of us have done, to provide stimulus and support for the economic recovery and to prevent too large a fall in inflation. The root problems, I think, are worth focusing on for a second: ... | 1,434 |
fomc | 2,008 | Thank you. Several people have mentioned press conferences. I should say that we're looking very carefully at the idea of doing quarterly press conferences with the release of the projections, along the lines of the Bank of England. If we decide to do that--and input from the Committee is welcome--the first one would b... | 163 |
fomc | 2,008 | Mr. Chairman, my colleague Harvey Rosenblum made an interesting point the other day that we're at risk of being perceived as migrating from the patron saints of Milton Friedman and John Taylor to a new patron saint--Rube Goldberg. [Laughter] By the way, I'm going to give a speech on Rube Goldberg next Thursday--I do th... | 1,748 |
fomc | 2,008 | I'm in awe of a presentation that has Rube Goldberg, the Black Death, "Bennie and the Jets," and full frontal view all in it. [Laughter] Governor Warsh. | 40 |
fomc | 2,008 | Thank you, Mr. Chairman. I'm a visual thinker. [Laughter] So I'll begin where Governor Fisher ended his remarks. To thank Brian, David, and Nathan for two reasons: First, obviously I thought you did a great job, and second, I didn't want to be the first jerk around this table not to acknowledge you. So I felt some burd... | 1,763 |
fomc | 2,008 | Thank you. Governor Kroszner. | 9 |
fomc | 2,008 | I thank you very much. I will make it 16 out of 16 on the excellent work of the staff, but I think also something that comes through from that is that we have to have a great deal of humility given the situation that we're in. We can use analogies from Japan. We can use analogies from other parts of history or from Swe... | 1,523 |
fomc | 2,008 | Governor Duke. | 3 |
fomc | 2,008 | Thank you, Mr. Chairman. I'd like to make it unanimous in thanking the staff. For me, particularly, you have extended the process by which every hour that I've been here has been deeply educational and have helped put the things I've been doing since I got here in some sort of a context. Along those lines, the one thin... | 1,544 |
fomc | 2,008 | Thank you. Thank you all. I actually would like to try to distill some impressions from our discussion and, going even a step further, maybe draw some very tentative conclusions for the statement and decision tomorrow. I do that in the spirit of fairness because tomorrow you have a chance to rebut what I say now. So le... | 275 |
fomc | 2,008 | It might work eventually, but right now I would guess the spread between the effective funds rate and the target would be bigger than that. We're sort of running that experiment right now. The market consensus is that the Fed is going to reduce the target 50 basis points at this meeting. That's incorporated in the curr... | 182 |
fomc | 2,008 | I agree. | 3 |
fomc | 2,008 | All right. Well, that's relevant information. So it may be that our options are a range of 0 to 25 or no target, but those are two options that I would point to. I should also say, as I discuss the statement here, I think that in a very real sense this is a transitional meeting. I mean, we can't go from 0 to 60 in one ... | 1,406 |
fomc | 2,008 | Good morning, everybody. Let's start off today with the economic outlook. Dan, will you be taking the lead? | 23 |
fomc | 2,008 | 3 Thank you. I will be using the packet of charts that starts with the staff presentation on financial markets. The charts for the other two presentations are included in this packet and follow mine. As shown in the top left panel of your first exhibit, long-term nominal Treasury yields posted their largest intermeetin... | 1,951 |
fomc | 2,008 | I will be referring to the exhibits that follow the green nonfinancial cover page. The indicators that we have received since the last FOMC meeting suggest that real activity has been contracting rapidly, and as Dan has described, financial conditions have continued to deteriorate. Starting with the labor market, priva... | 2,712 |
fomc | 2,008 | I will be referring to the exhibits that follow the blue International Outlook cover page. Financial markets in foreign economies remain stressed but have not suffered further pronounced deterioration since the October FOMC meeting. As shown at the top of your first exhibit, government bond yields in major industrial e... | 2,023 |
fomc | 2,008 | Thank you. Remind me what your anticipation of the current account deficit is for next year. | 19 |
fomc | 2,008 | I think the deficit goes down to about 3 percent. | 12 |
fomc | 2,008 | Yes. We see the current account deficit, as Shaghil said, bouncing between 3 and 31/2 percent of GDP through 2009 and 2010. In the near term, you have much weaker foreign growth and a stronger dollar, but that is offset by the lower level of oil prices, so that keeps the current account deficit around the 3 to 31/2 per... | 83 |
fomc | 2,008 | Okay. Thank you. Questions for our colleagues? President Bullard. | 14 |
fomc | 2,008 | I was just looking at the policy rates abroad here--this is the picture in exhibit 3, I guess. It shows the ECB, the Bank of Canada, and the Bank of England all leveling out before they get to zero. Do you have a sense of what the plans are there, or what they are saying about that, or are we going to see a sort of glo... | 88 |
fomc | 2,008 | Looking at the policy that is going forward, first of all, we are forecasting here what we think they will do, not necessarily what we think they should do. Given their past behavior, we think that they will be ratcheting up the rates the first chance they get. The timing is a bit different, but the rates are broadly i... | 103 |
fomc | 2,008 | So this is from surveys of market participants? | 9 |
fomc | 2,008 | No. This is our projection. | 7 |
fomc | 2,008 | Right. But you are getting the information from surveys and other things. | 14 |
fomc | 2,008 | It is informed by surveys, yes. | 8 |
fomc | 2,008 | I would add that I think the ECB in particular has a real aversion to policy activism. In fact, Trichet was on the wires this morning indicating that they are not really comfortable with where they are right now. They may pause in January, and I think it really would take a more severe outcome for activity in the euro ... | 184 |
fomc | 2,008 | President Fisher. | 3 |
fomc | 2,008 | Just a comment on the projections for China--these numbers seem to be less than what they are saying officially. Am I correct? | 26 |
fomc | 2,008 | Yes. These numbers are less. | 7 |
fomc | 2,008 | That sort of jibes with the reports that I am hearing back from the CEOs doing business in China. In fact, the cutback has been much more dramatic than they expected. Semiconductor firms, for example, have put ship-stop orders, meaning they are stopping for lack of payment, and the retailers are seeing a noticeable dro... | 81 |
fomc | 2,008 | I think the latest official numbers don't incorporate the November data, which just came out--actually, they came out yesterday--and some trade data since the Greenbook. | 33 |
fomc | 2,008 | But you are saying that we do expect further currency depreciation. | 12 |
fomc | 2,008 | In the near term, yes, through the first half of next year. | 15 |
fomc | 2,008 | I have three questions, Mr. Chairman. One on the commercial paper market. What is the spread between A1/P1 and A2/P2 right now? | 33 |
fomc | 2,008 | For term, it is a huge spread, probably 300 basis points or so, but overnight it is much smaller. | 24 |
fomc | 2,008 | As you go out the term, it is even more. | 12 |
fomc | 2,008 | So the incentive for A1/P1 borrowers is to do everything they can to keep that status, obviously. It is a much more attractive proposition. | 30 |
fomc | 2,008 | Yes. | 2 |
fomc | 2,008 | Which leads to more-conservative financial management and business management. You do everything you can not to become an A2/P2 borrower, to slip off the A1/P1 ladder. | 37 |
fomc | 2,008 | Historically BBB was the sweet spot of the corporate capital structure, and that was associated with A2/P2 commercial paper borrowing, which people thought was safe. It turned out not to be quite as attractive as they had thought. | 46 |
fomc | 2,008 | I think over history this isn't the only time when A2/P2s have come under stress. Whenever there were disruptions in the market--for example, after the California utilities defaulted in the early part of the decade--A2/P2 outstandings plummeted, and A2/P2 spreads rose, though not nearly to this magnitude. This is truly... | 171 |
fomc | 2,008 | I guess my point is that the way in which it works is that it gives people incentives to be even more conservative in the financial management of their operations. On household credit, do we have a sense of how much shift is taking place between credit card usage and debit card usage? Under these conditions of duress, ... | 76 |
fomc | 2,008 | I don't know those data. | 6 |
fomc | 2,008 | It might be something to look at next time. Finally, on the inflation table in exhibit 5--and you have talked about the numbers that were released this morning--do you see additional monthly deflationary numbers on the headline CPI, or could you see this happening for a prolonged period, say for a quarter? We have a ta... | 109 |
fomc | 2,008 | No. We have another two months of small declines anticipated as the energy prices continue to pass through and then, beyond that, some small increases. So we don't see this as an extended period of negative headline. | 42 |
fomc | 2,008 | So December/January? | 5 |
fomc | 2,008 | December/January--exactly. | 7 |
fomc | 2,008 | And what is the order of magnitude? | 8 |
fomc | 2,008 | We are looking for about minus 0.5 percent in December and minus 0.1 in January. We are also not expecting the core figures to remain as low as they have been running for the past month or two. We do think that they have been held down by some very significant declines in air fares. That could continue for another mont... | 209 |
fomc | 2,008 | Thank you, Mr. Chairman. | 7 |
fomc | 2,008 | President Lacker. | 4 |
fomc | 2,008 | Thank you, Mr. Chairman. Our staff does such a fine job. Maybe my hearing is going, but I missed the names of our staff presenters. Can we get them introduced to us? | 39 |
fomc | 2,008 | I'm Stephanie Aaronson. | 5 |
fomc | 2,008 | I'm Dan Covitz. | 5 |
fomc | 2,008 | Shaghil Ahmed. | 5 |
fomc | 2,008 | Great. Thank you very much. I have a question for Stephanie. You know, they do such a great job. | 24 |
fomc | 2,008 | Jeff, are you feeling okay? [Laughter] | 11 |
fomc | 2,008 | We apologize for our lack of manners. [Laughter] | 12 |
fomc | 2,008 | Maybe it is a southern thing, I don't know. [Laughter] The sectoral reallocation is really intriguing, and it is something that I have been curious about in this whole episode. The measure is not one I am familiar with. It is one for which you count each industry as a unit, right? | 64 |
fomc | 2,008 | Exactly. It is a Lilien type of dispersion index. This isn't actually how we calculate it, but it is essentially how the industry's share of employment changes relative to total employment. So it is the growth in that industry's employment relative to total employment. What we do is that we know that over the business ... | 165 |
fomc | 2,008 | And housing always goes down in a recession. | 9 |
fomc | 2,008 | Housing and construction always go down, so we take that out, and then we say, okay, so now there are these atypical movements that are greater than we usually see. That is what we would consider the sectoral reallocation. That is what is left over. You can see, as I mentioned in the briefing, that actually during rece... | 163 |
fomc | 2,008 | Yes. So it is sort of a bummer that these go up in the recession if you are trying to measure what is happening to the NAIRU. But I always thought of the phrase "sectoral reallocation" as having to do with the theories of the business cycle in which cyclical downturns are caused by an unexpected decline in a given indu... | 224 |
fomc | 2,008 | I have looked at that, and actually, it doesn't make that much of a difference. Construction goes down in every recession, and so by that measure sectoral reallocation is higher in every recession. I mean, construction is contributing more to sectoral reallocation here than in previous recessions because the declines h... | 137 |
fomc | 2,008 | Yes, yes. I guess it is also related to how you think about the NAIRU. To some extent, if unemployment goes up in recessions, then what unemployment is supposed to be goes up in recessions as well, it seems. I have a question about the first exhibit. It is the first set of exhibits. It is also about commercial paper. W... | 130 |
fomc | 2,008 | I think it is very difficult to interpret it that way because the intervention did happen and the bulk of the improvements happened subsequent to the intervention. | 28 |
fomc | 2,008 | What sort of spillovers from our intervention in A1/P1 do we expect perhaps to have influenced or to have led to an improvement in A2/P2? | 33 |
fomc | 2,008 | I think that the decline in the A2/P2 overnight suggests improvement. But there is some concern about sample selection, and you have to worry about that at the same time. It could be just that you are getting higher-quality issuers in the A2/P2 sector. But it turns out you're not. It turns out that it explains only abo... | 76 |
fomc | 2,008 | You know, it also may have helped the money market fund industry to keep its money knowing that there was a facility outstanding that could provide liquidity for that sector because we did see inflows back into the money market mutual funds. | 45 |
fomc | 2,008 | So their willingness to buy A2/P2 may have been affected by another program, not the CP one. You are saying the money market fund program-- | 31 |
fomc | 2,008 | They provided more stability to the system as a whole. | 11 |
fomc | 2,008 | To the prime money funds. | 6 |
fomc | 2,008 | So we can't separate the individual programs. | 8 |
fomc | 2,008 | There is a second factor. There has been discussion of extending the A1/P1 program to A2/P2, which the industry is certainly aware of, but I would highlight with the A2/P2 that a lot of the mutual funds do not want to hold it over the end of the year. Most of the A2/P2 borrowers are having trouble rolling over year-end... | 143 |
fomc | 2,008 | Well, you wouldn't expect speculation about imminent extension of the program to A2/P2 to support the overnight rate for A2/P2 unless they expect it to be implemented overnight. A question about strains: To what extent are we able to disentangle whether the market is strained or the issuers are strained? | 62 |
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