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fomc | 1,994 | What are the consequences of not approving this request? | 10 |
fomc | 1,994 | I don't know for certain; that's why we are having this discussion, if I may put it that way. If the weight of opinion in the Committee was against going ahead with this request, I think we would inform the Mexicans and the Treasury in advance so that they didn't embarrass us and themselves--particularly themselves--by... | 159 |
fomc | 1,994 | Well, there are these two issues. One is the wisdom of swaps in general and how well they've been used. Then there is the question of whether Mexico ought to be treated differently. The $6 billion is in line with trade flows and various other economic ways of measuring these things. So really it's the second issue of w... | 173 |
fomc | 1,994 | I'm sorry I didn't answer your question. I'm not sure what you mean when you say "treat Mexico differently." If you mean by turning down their request, there have been a number of countries over the years whose requests, either to join the swap network or to enlarge existing swap lines have been turned down. So nonappr... | 277 |
fomc | 1,994 | What are the consequences of something less than $6 billion? | 12 |
fomc | 1,994 | It's doable but I'm not sure it's worth arguing about, if I may put it that way. | 19 |
fomc | 1,994 | All right. | 3 |
fomc | 1,994 | Let me just add a point here. When Treasury approached us, we toned them down a good deal; we set up a lot of road blocks in periods when they wanted to move. And we have that capability of restraining actions which I think this Committee, myself included, feels uncomfortable with. If we decide that we want to disengag... | 270 |
fomc | 1,994 | So this is really the price of admission to a bigger show? | 13 |
fomc | 1,994 | It's a partial price, I would say. We have never been in a position with this Treasury of essentially thwarting something about which they feel strongly. Basically Secretary Bentsen, I think, feels very strongly about this; he was an ardent supporter of NAFTA. It is his belief that American interests in the internation... | 197 |
fomc | 1,994 | I certainly would not favor disengagement and I don't have problems with the numbers that are being proposed. Is it feasible to have an agreement among the Treasury, Mexico, and us--and for that matter others with whom we have swap arrangements--that the swaps would be used to deal with disorderly markets? I would feel... | 68 |
fomc | 1,994 | Well, let me make two points. This Treasury certainly agrees that we do not want to get engaged in using the swap line to peg the exchange rate. That's point number one. Therefore, in the circumstances, we are dealing essentially with pressures on the exchange rate, which as President McTeer explained, can exist even w... | 275 |
fomc | 1,994 | That's helpful to me. | 5 |
fomc | 1,994 | Governor LaWare. | 4 |
fomc | 1,994 | I guess I'm somewhat confused because the comments around the table seem to address different parts of this issue. Are we discussing the merits of swaps, period? Are we discussing the merits of any swap line with Mexico? Are we discussing just a request for an increase in the swap line with Mexico? Or are we discussing... | 338 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | To continue Governor LaWare's train of thought, it would appear that at some stage we may need a greater and deeper philosophical discussion of swaps. But that isn't really what we should be talking about today, it seems to me. We do have swap facilities. Also, we are not discussing whether we should have a swap facili... | 592 |
fomc | 1,994 | President Parry, quick question? | 7 |
fomc | 1,994 | Yes, point of clarification. You are quite correct that it's sometimes difficult to define what is a disorderly market, and everybody would agree that we should give the authorities the judgment on that issue. But the issue is whether the authorities should attempt to prevent what might turn out to be a disorderly mark... | 68 |
fomc | 1,994 | Sure. Just a very brief response: I think where honest people could differ is if we were moving toward what we were very certain was going to become a disorderly market very quickly--for example, if we and the other central bank involved knew that the reserves were really moving out. Then we'd have to decide whether us... | 127 |
fomc | 1,994 | I hope so. | 4 |
fomc | 1,994 | But since disorderly markets are so hard to define, to have the combination of, say, Summers and Truman raise their hands and say this is a disorderly market and then we debate whether they are right or not is not something I think we want to get into. | 54 |
fomc | 1,994 | You know, this is a much more profound issue about the nature of the Federal Reserve System than I think we realize. It really gets to the issue the Vice Chairman was raising earlier as to what type of institution we want to be. And I sensed this whole philosophical debate in the discussion we have been in the process ... | 442 |
fomc | 1,994 | Well, I was simply going to say that going forward we need to keep in mind that there is a tradeoff between the good we can do with a somewhat broader function and our independence. I think we always need to have that in front of us. But the other point is that as a Committee we need to take a fundamental look at some ... | 139 |
fomc | 1,994 | President Jordan. | 3 |
fomc | 1,994 | The questions I had in mind have been largely answered by your remarks just now and by Bill's remarks before, putting this matter into a broader context. I think your remarks are extremely important. The reason is that the way we conduct ourselves this year with regard to this issue and how that's viewed when it gets s... | 238 |
fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | Mr. Chairman, I am in general very supportive of your comments, and I have the exact concerns that you and my colleagues have. But two points came up in this discussion that troubled me. The first is the use of the phrase "this Treasury." | 51 |
fomc | 1,994 | Well, if I read this morning's paper correctly, | 11 |
fomc | 1,994 | What did you see in the paper this morning? | 10 |
fomc | 1,994 | Apparently there was some talk in the Washington wire or one of those columns that he's going to be out but that Mr. Altman will not be the successor, Mr. Rubin will be. That's just part of it. Is that malicious gossip? | 49 |
fomc | 1,994 | That's U.S. news. | 6 |
fomc | 1,994 | That's U.S. news. It has nothing to do with the point except that I want to make certain that we are clear in our own minds that we are not making a deal with "this Treasury," "this Secretary of the Treasury," "this Deputy Secretary of the Treasury," or "this anything." So we should not cloud our judgment because we wi... | 292 |
fomc | 1,994 | Yes, although it depends on the circumstances; but yes in principle. In the past that's how things have happened and I would expect no matter who is the Chairman that's how things would be done. | 39 |
fomc | 1,994 | Well, this Chairman will be with us a long time. | 12 |
fomc | 1,994 | We are not always perfect at this, but in the past efforts have been made by the staff, particularly in the case of Mexico because the Mexican swap line has been more actively used than the others, to keep the Committee informed about developments and to try to anticipate possible requests. There have been discussions ... | 133 |
fomc | 1,994 | Well, I think the real question to ask is how hard do you think it would be under real live circumstances for us to say "no"? Say, for example, we are coming up on two weeks before the Mexican election and there is a legitimate run on the peso--a disorderly market because it looks as if someone else is going to win or ... | 110 |
fomc | 1,994 | Well, I think it would be difficult to say "no" if they came to us, as they have in the past, and asked for a special arrangement, too. Obviously, you would confront a slightly different situation if they have a $6 billion--in our case $3 billion--swap line with us; it may be slightly more difficult to say "no" to an a... | 280 |
fomc | 1,994 | President McTeer. And I hope you have the last word because we are running up against time. | 21 |
fomc | 1,994 | I have just a fairly narrow question. This says we are considering a substantial enlargement of the Federal Reserve and Treasury swap lines with Mexico. We are the central bank, the Treasury is the finance ministry, and Mexico is a country. I see in the footnote, though, that the swap line is with the Bank of Mexico an... | 79 |
fomc | 1,994 | In our case it is central bank to central bank and will remain that way. In the Treasury's case, currently it is the Treasury using the Federal Reserve Bank of New York as its agent with both their treasury and the central bank of Mexico. I assume they will continue that practice, but that's a question the Treasury has... | 105 |
fomc | 1,994 | Along the lines Larry was getting at, I think it's reassuring that we are dealing with the central bank rather than the government or the treasury. | 28 |
fomc | 1,994 | Does anyone else want to have the ultimate last word? Let's then move on to our economic discussion and Messrs. Prell and Truman. | 28 |
fomc | 1,994 | Ted will begin. | 4 |
fomc | 1,994 | This is out of order! | 6 |
fomc | 1,994 | We switched. | 3 |
fomc | 1,994 | [Statement--see Appendix.] | 6 |
fomc | 1,994 | [Statement--see Appendix.] | 6 |
fomc | 1,994 | Questions for either gentleman? | 5 |
fomc | 1,994 | I attended my first meeting of this Committee two years ago at the March meeting. Over those two years I've been tracking the migration of the staff forecasts on nominal and real GDP, prices, and so on meeting to meeting. And at my first meeting in March of 1992, the projections for 1993 that the staff had at that time... | 451 |
fomc | 1,994 | Well, as I noted, I think we have provided a baseline against which you can apply your own objectives. As I said, if you accepted the structure of our forecast but didn't accept the implied result for inflation, it would logically lead you to say that the monetary policy assumption made wasn't sufficiently stringent. A... | 410 |
fomc | 1,994 | President Parry. | 4 |
fomc | 1,994 | I'd like to ask a question about unemployment that I don't think is related to that excellent memo that deals with some of the problems with the new series. It may be a bit related to your answer to Jerry. Looking at the unemployment rate and the amount of slack implied in labor markets, it looks as though you have eit... | 147 |
fomc | 1,994 | I think you've put your finger on what is a significant question and, if we had wrestled with it for a while longer, perhaps we might have come to a different conclusion. You've highlighted the key point, and that is that we have taken seriously our view of what has happened recently--I mean the drop in unemployment--n... | 209 |
fomc | 1,994 | And when you do that, does that raise any questions or issues about one's view of NAIRU? | 21 |
fomc | 1,994 | No, I think this is separable. But again, going into this deeply, one gets into questions of labor market structure and behavior. It's not entirely separable from those features of the economic system that relate to how much pressure we get on wages and prices at given measured levels of unemployment. | 59 |
fomc | 1,994 | Well, to the extent that the NAIRU doesn't change, it clearly has significant implications. | 19 |
fomc | 1,994 | Well, all things equal, if we held to our assumption of the NAIRU of 6-1/2 percent or a shade less and we had unemployment at 6.8 percent, and looked at those numbers very, very finely, that would be enough slack, presumably, to give us some modest edging off in the inflation rate over the coming year or two. | 76 |
fomc | 1,994 | Thank you. | 3 |
fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | Mike, I note that in the forecast there is a roll-back at the long end of about 1/2 percentage point, but suppose that doesn't happen. How would that change your forecast? | 39 |
fomc | 1,994 | My life is flashing before me in the transcripts of the meetings that were released recently where we got into extended discussions of these sorts of hypothetical cases. It's a fair question; it was back then, too. [Laughter] I think we made some significant mistakes in our assessments of what the term structure would ... | 213 |
fomc | 1,994 | Let's assume the first; could you quantify it at all? How sensitive is the forecast-- | 18 |
fomc | 1,994 | I think 1/2 percentage point at the long end, even perhaps modifying the rather strong interest-sensitivities in our model, is non-negligible in terms of economic impact. So I think we are talking about potentially a few tenths on GDP over the next year. | 58 |
fomc | 1,994 | Any further questions? If not, who would like to start the tour de table? | 17 |
fomc | 1,994 | I'll jump in first, Mr. Chairman. In the Atlanta District, economic activity continues to look quite positive. Retail sales, for example, have shown very good gains in both February as well as in early March. Businesses are reporting increased traffic and the expectation is that the rest of March will be equally good. ... | 928 |
fomc | 1,994 | President Boehne. | 5 |
fomc | 1,994 | The tenor of the Third District's economy has changed during the last several months. Economic growth now resembles the type of growth typical of an expansion rather than the lackluster performance that we have been experiencing in the mid-Atlantic region. Manufacturing is clearly strong in the District, with much of t... | 701 |
fomc | 1,994 | President Keehn. | 4 |
fomc | 1,994 | Mr. Chairman, in terms of the District, there is no question that the underlying level of economic activity has been and remains strong. And despite the miserable weather that we have had in the Midwest most sectors, with the obvious exception of housing construction, have come through very, very well. There is little ... | 841 |
fomc | 1,994 | President Broaddus. | 5 |
fomc | 1,994 | In our District, we certainly have not seen any significant weakening in business conditions recently, aside from some temporary setbacks which seem clearly to be related to the weather. Business is basically good across all sectors and I think it's fair to say that most of the people we have contact with, our director... | 1,132 |
fomc | 1,994 | Chairman Greenspan, could I inject a couple of points of clarification here? | 16 |
fomc | 1,994 | Sure. | 2 |
fomc | 1,994 | One, for what it's worth, the level of GDP is about the same in this forecast as in the last. As currently estimated, we got more growth in the fourth quarter than we anticipated and, in essence, the lower growth rates simply offset that surprise. The second point is one of arithmetic on consumption in the first quarte... | 112 |
fomc | 1,994 | Right. | 2 |
fomc | 1,994 | The retail sales revisions for January were dramatic, and they would substantially lower the number one gets doing the same February/March arithmetic. So that's the key explanation for why we have as seemingly low a number as we have. On the interest rate story, I think you did touch upon the various elements in our th... | 265 |
fomc | 1,994 | Well, that's fair. The point I was addressing particularly in the Greenbook as distinct from what you said this morning--I think the emphasis was a little different--is that you had a statement saying "we are inclined to think that the emergence of a large inflation premium per se can explain relatively little of the r... | 86 |
fomc | 1,994 | President Parry. | 4 |
fomc | 1,994 | Mr. Chairman, information we received about the Twelfth District's economy since the last meeting suggests that the economy has strengthened, although I would point out that California's economy continues to lag. The District outside of California is experiencing very strong growth. District employment growth outside o... | 556 |
fomc | 1,994 | First Vice President Minehan. | 6 |
fomc | 1,994 | Well, I have a somewhat less bullish report than the rest of you. But it's also a little less bearish than has been the usual case for the First District. Sizable data revisions and recent data trends suggest that the New England economy is doing better than most observers, including ourselves, recently thought. Upward... | 704 |
fomc | 1,994 | President Stern. | 3 |
fomc | 1,994 | Our reports on the Ninth District have been positive for a long period of time now and nothing has really changed. In fact, it appears that there has been a further step-up in activity pretty much across the board both by region and by sector. Attitudes are positive; employment has continued to increase; expectations a... | 632 |
fomc | 1,994 | President Jordan. | 3 |
fomc | 1,994 | Before commenting on the District, I want to report on the presentation I heard yesterday on small businesses. I think most of you know the National Federation of Small Businesses has over 600,000 members. I normally don't pay too much attention to their surveys, which they do once a month, but I was struck by the extr... | 828 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | The Second District is mirroring what Cathy Minehan said about the First District. It has begun to participate in the economic recovery, led by very strong exports, especially to Canada, and what you are all very familiar with, the strong performance of the financial sector. So wages are beginning to move up. General e... | 832 |
fomc | 1,994 | President Melzer. | 4 |
fomc | 1,994 | The national economy, as we all know, has been expanding rapidly and that's a phenomenon we would expect to see continue on a path above that shown in the Greenbook. For example, industrial production over the last three months ending in February grew at an 8.4 percent annual rate; payroll employment grew at a 1.6 perc... | 688 |
fomc | 1,994 | President McTeer. | 5 |
fomc | 1,994 | Eleventh District employment growth has been greater than the national average for some time, but so far this year it has been below the national average. I suspect that that's because much of the country is recovering from recession while the Eleventh District is just recovering from sluggish growth. On the other hand... | 554 |
fomc | 1,994 | President Hoenig. | 4 |
fomc | 1,994 | Thank you, Mr. Chairman. To begin with our District, I will tell you that it's growing at a strong pace now. Recent employment numbers show a growth rate for the District as a whole above 3 percent. This is showing up in manufacturing not only of nondurables, which I've reported on before, but of durables as well, refl... | 613 |
fomc | 1,994 | Governor Kelley. | 3 |
fomc | 1,994 | Thank you, Mr. Chairman. As was said early on, our job here, of course, is to assess risks. And I think most of what we have heard today has been centered around the risks that we see in the upside direction. I certainly can't disagree that that is probably the most likely scenario, but I would like to inject a couple ... | 1,354 |
fomc | 1,994 | Governor LaWare. | 4 |
fomc | 1,994 | That's a nice sequence and I'd like to associate myself with a lot of what Governor Kelley just said. I want to add to that my perplexity about the projected relationships between four elements of the forecast. The first is the presumed direction of policy and the trajectory of interest rates associated with that polic... | 347 |
fomc | 1,994 | Governor Phillips. | 3 |
fomc | 1,994 | Thank you. There has been a lot of discussion about where we are right now with respect to the real economy. It does appear, no matter how we measure things and how January and February actually come in, that the economic strength is broad-based. And as part of that strength, we are seeing strong productivity improveme... | 1,103 |
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