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fomc
1,994
Having seen the results, in terms of the forecasts submitted, I am a little dubious for the reason that Jerry Jordan pointed out yesterday. President Hoenig.
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I think we should stay with the current targets as we have them, no changes. And in my view we should not be projecting 1995.
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President Parry.
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Mr. Chairman, I think our current ranges are consistent with our longer-term objectives and I would not be for changing them. In addition, I would not favor using the 1995 projections.
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President Melzer.
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I'd adopt the provisional ranges shown in alternative I. And I agree with your logic, Alan. I've always felt that we ought to get those ranges where they ought to be in terms of some concept of long-term price stability and then not move them around, even though they're not useful right now. I wouldn't provide the 1995...
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Governor LaWare.
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I would prefer to stay with the provisional ranges and I would be strongly opposed to releasing the 1995 projections.
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President Keehn.
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Mr. Chairman, I would not change the provisional ranges and, like Governor LaWare, I feel very strongly about not releasing the 1995 forecasts.
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President Jordan.
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I prefer the 1 to 5 percent range on M2. I don't have a clue about the debt number; I never did. While in principle I prefer publishing not only the 1995 numbers but beyond that, I certainly wouldn't want to publish these numbers! [Laughter] I'd like us to publish CPI objectives out through 1999, but I sure don't like ...
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President Stern.
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I agree with what has been said. I would keep the ranges as they are. I don't see any point in calling any more attention to the aggregates at this time. And I would not publish the 1995 forecasts.
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Governor Phillips.
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I would keep the ranges where they are and not publish the 1995 forecasts.
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Governor Kelley.
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The same: no change in the ranges and no release of 1995 forecasts.
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President McTeer.
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I agree with everybody on everything. [Laughter]
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All the time!
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Vice Chairman.
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I agree with maintaining the provisional ranges and believe we should not release a forecast for 1995. There's no question in my mind that it would become a forecast with which we would be expected to live and there's no consensus in the Committee on what such a forecast should be.
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President Boehne.
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I'd declare victory on the M2 and M3 ranges, and I don't have any feelings about debt at this point. And we're not ready for an extended forecast beyond the next year.
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I think we're as close to unanimous as we can get on these sorts of things. Why don't we vote on the same ranges and no publication of 1995 forecasts.
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I'm reading from page 23 now in the Bluebook. The first sentence is unchanged, and continuing: "In furtherance of these objectives, the Committee at this meeting established ranges for growth of M2 and M3 of 1 to 5 percent and 0 to 4 percent respectively, measured from the fourth quarter of 1993 to the fourth quarter o...
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Call the roll.
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Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus Yes President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes
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I'd like to take a moment before we adjourn to note the impending retirement of one of the System's most distinguished economists, Dick Davis. During his 33 years at the New York Bank he's provided important service not only to that institution but to the System as a whole. Repeatedly when there was a major issue regar...
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Dick, if you want to make a speech you're welcome.
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I appreciate your remarks very much; thank you.
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Good speech!
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Well, let's adjourn to lunch.
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Good morning everyone. We welcome Cathy Minehan.
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Thank you, Mr. Chairman.
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I trust you won't dominate the meeting but if you do, so be it!
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I trust I won't either!
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Would somebody like to move the minutes of the February meeting?
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So move.
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Without objection. Peter Fisher.
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[Statement--see Appendix.]
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Questions for Peter? I assume that the econometric model that gave you that forecast has a number of linear equations in it. [Laughter]
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Yes, undoubtedly.
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Would somebody like to move approval of the Desk's foreign exchange transactions since the last meeting?
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So move.
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Is there a second?
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Second.
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Without objection.
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Mr. Chairman, may I just ask one question?
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Sure.
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I'm sorry I didn't do it in a timely fashion. There was some talk in Europe that was critical of the hedge funds of banks for contributing to the instability. Do you think that worsened the situation or had no effect?
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There were some days on which the criticism of hedge funds or leveraged funds or derivatives worsened the impact. That impact wasn't very long-lived, but there were a few days when comments by officials, especially the ones by unnamed officials allegedly getting tough on hedge funds or derivatives, were counterproducti...
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Okay, I'd like to call on Joan Lovett next.
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[Statement--see Appendix.]
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Questions? If not, would somebody like to move to ratify the actions of the Desk over the intermeeting period?
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And to increase the leeway.
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And to increase the temporary leeway.
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So move.
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Second.
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Without objection, both are approved. Mr. Truman.
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The subject is the permanent enlargement of the Mexican swap line. I hope the background material that was circulated to you was reasonably comprehensive and comprehensible and that, therefore, I can be brief. As was explained, there are two themes to this discussion. One is the Mexicans' desire for a substantial and p...
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I have two questions, Ted. First, is this proposal contingent in any way on Canada's moving? Second, are these conditions, for example the collateral and consultative apparatus, unique to this arrangement or do the other swap agreements have those as well?
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On the question about Canada, I think it's required that the Canadians come in at some point. They actually do have a swap line now. Whether they will agree on the amount that the Treasury is thinking about, which is C$1 billion to C$2 billion or the size that the Mexicans are thinking of, which I was told is C$3 billi...
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But I take it these conditions are satisfactory to the Mexican authorities?
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I assume so. We haven't had a full set of discussions, so I can't say that with certainty.
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President Jordan.
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First, just a small item of clarification. In your memorandum you say Canada's line would be increased to between C$1 billion and C$2 billion, but it is already C$2 billion so I assume--
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No, Canada's line with Mexico would be increased from its current C$250 million to between C$1 billion to C$2 billion.
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Okay.
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It hasn't been proposed yet to increase our swap line with Canada.
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Our own with Canada?
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Right.
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With regard to Mexico, I have very mixed feelings. On the one hand, I have trouble with all the swap lines, their utilization, and the conditions. I'm still not satisfied in my own mind as to what is or is not an appropriate use of swap lines per se. And in that respect there is no reason to treat Mexico as a second cl...
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President Broaddus.
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I didn't have a question, but a comment if that's appropriate now. I have a lot of sympathy with what Jerry just said. I think Ted has presented a number of plausible reasons for enlarging this swap. I think the memo that he distributed was very helpful and it showed that this facility has been used constructively on a...
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Vice Chairman.
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I'd also like to make a comment. I think that one of the functions of the Federal Reserve is to seek monetary stability in a broader framework than just the American economy itself because of the obvious interlinkages of world markets, as we have heard this morning in Peter's and Joan's presentations. I think that has ...
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President Parry.
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Well, I must admit that I can support the recommendation. What concerns me most, however, is its potential use, a concern related to Jerry's. I recall the paragraph in the Maroni memo referring to the fact that in 1988 the swap line was used for window-dressing operations to enhance the announcement of the country's re...
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Their argument at the time obviously was that announcing a drop in their reserves would cause problems on the financial markets and that was the reason we went along with their request.
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Hasn't there been a tradition to use swaps to deal with disorderly markets or do we also use them to prevent disorderly markets?
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I think they have been used for both purposes. At times when we have been involved, there have been so-called window-dressing operations. There were some in the 1980s. During the 1982 period they were driven by a slightly different set of considerations that had to do with domestic currency cover concerns. I think it i...
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But these Mexican swap lines were used in 1976, 1982, and 1988 as well. The political aspect seems apparent.
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Well, there have been occasions on which they have been drawn other than in Mexican presidential election years. But it is true that those last three have been election years.
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President Hoenig.
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Mr. Chairman, I have to admit some ambivalence toward this. I think that to use the swaps, as the memos themselves imply, to influence exchange rate levels is risky business. I do agree with Bill McDonough that they can be used to stabilize markets. My question is about the size of the proposed increase. From the mater...
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That's a fair interpretation. The $5 billion number was a number that in fact the Mexicans put forward a year ago when they approached us and they had done a rough back-of-the-envelope calculation of the increase in swap lines since the swap network was first established. One can come up with these numbers for various ...
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First Vice President Minehan.
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I have a question and a comment. Ted, is it accurate to say that Mexico has been the only country since the early '80s to actually draw on the swap lines?
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Yes.
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So the conditions that we impose on Mexico in some sense do not involve treating them like a second-class citizen; those are the only conditions that are really operative at present in terms of our swap lines.
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Well, we went the same way in the past. The most recent other drawing was in the early '80s by Sweden. And we asked ourselves the same questions at that time, about how long the drawing was going to be outstanding, what the conditions were, and how they would contemplate repaying it. So in that sense we asked the same ...
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I would generally agree with President McDonough that this is a legitimate function of central banks in general. But I would be concerned, to whatever extent we enter into this swap agreement with Mexico, that we do so on a businesslike basis for us. In that regard I'd be a little nervous about relying on the Treasury'...
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Well, maybe I have not been clear on this. What I was suggesting, just as a matter of convenience, was not that we would rely on the Treasury but that the Treasury could put the conditions in their swap arrangement because they have done that in the past. We have not put such conditions in our agreements in the past, w...
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So you would contemplate that if they ever needed--
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They would have to come and ask to draw on the swap line and we would have to approve it. And at that time we would say, "Well, yes, we will approve it as long as we make these collateral arrangements." That's what I would contemplate rather than pre-specifying those conditions. But we'll do it either way.
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President McTeer.
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I would support the proposal. I think I heard Al Broaddus saying that since the line wouldn't be used to peg the exchange rate then it is likely to be used for some other purpose that would be less legitimate and outside of our scope. However, a crawling peg is a peg when you reach the limit of the crawling peg. And at...
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President Boehne.
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