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fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | Mr. Chairman, I think we have heard today a very optimistic view outside of New York and Washington and a very pessimistic view from those of us in New York and Washington. I hope it's natural for people in Washington to be pessimistic; you just have to live here and watch it. [Laughter] But I've decided that everyone ... | 605 |
fomc | 1,994 | Let's keep this coffee break a little shorter than usual. | 11 |
fomc | 1,994 | [Statement--see Appendix.] | 6 |
fomc | 1,994 | Questions for Don? | 4 |
fomc | 1,994 | Don, in the early part of your remarks, you made reference to the credibility of the Committee's commitment to, you used the word, "contain" inflation, and later in your remarks you said, "to contain inflationary pressures or to reduce them further, if that is your objective." So, again, you were using the words that M... | 166 |
fomc | 1,994 | I'm not sure I can add very much to what Mike said in response to your previous question except to say that my words in regard to alternative C were meant to suggest that strong action--50 basis points now and likely considerably more down the road--would probably be more consistent with getting inflation down than the... | 130 |
fomc | 1,994 | Did I read too much into your expression "or to reduce further, if that is the Committee's objective"? It sounds to me as if you are doubting that that is our objective. | 38 |
fomc | 1,994 | I was just suggesting that that's the alternative you ought to consider if you really want to bring inflation down and make measurable progress. That would be one reason for looking at alternative C. | 36 |
fomc | 1,994 | President McTeer. | 5 |
fomc | 1,994 | Recently, growth rates of the narrow measures of money have slowed and the broad measures, if you adjust them for stock and bond flows, have slowed. The only measure that has accelerated has been the monetary base and that's entirely in currency. Where is the currency going? | 53 |
fomc | 1,994 | We don't have current data on that. We do have a sense that the flows overseas are large. I don't think we have a good fix on where they are going, especially since where they might go initially--suppose they went to Switzerland or something like that--doesn't indicate what the final destinations might be. | 63 |
fomc | 1,994 | In the last couple of months, interest rates have risen a good bit and all the monetary aggregates that count in this country have slowed. Would you say we have had a significant tightening already? | 38 |
fomc | 1,994 | I tried to suggest that some of the slowing might be in response to the rise in interest rates, though ordinarily we would think that it would take longer. On M3 in particular, we have these institution-only money funds that are very sensitive to small changes in interest rates, and we think that accounts for a substan... | 317 |
fomc | 1,994 | It sounds as if you're saying the signals are jammed. | 12 |
fomc | 1,994 | Right. | 2 |
fomc | 1,994 | If nobody else has questions, why don't I get started. I'd like to take a minute to put the current period in some historical perspective. We have had extraordinary financial turmoil, and it's worthwhile to go back in time and see where it came from and where it's likely to go. My impression is that we are looking at t... | 4,258 |
fomc | 1,994 | Well, I think the case for a less accommodative policy today is quite persuasive. We did press hard on the monetary accelerator to get the economy moving, and now as the economy approaches cruising speed we have to ease off the accelerator to avoid having to slam on the brakes down the road. The real issue--the major i... | 534 |
fomc | 1,994 | President Parry. | 4 |
fomc | 1,994 | Mr. Chairman, I think that robust growth in real GDP in recent quarters has sharply diminished the slack in both labor and product markets. And if growth does not slow as much as anticipated, we could be facing significant upward pressures on inflation. Despite the action taken at the last meeting, the real federal fun... | 335 |
fomc | 1,994 | President Broaddus. | 5 |
fomc | 1,994 | Let me just say that I agree 100 percent with Ed Boehne. He said it very well; he really reflected my position completely. I have just a couple of comments. Again, as I suggested earlier, despite the good news on current inflation at this juncture, we can see clear signs that an inflationary psychology is building, and... | 367 |
fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | Mr. Chairman, I think I'm with you with a modification. We definitely want to send a signal to the market, and I think that there are two ways of doing that. One, which is not an option before us, is to go to a number that is a credible--a round number that people would say is the natural rate. One might contemplate a ... | 403 |
fomc | 1,994 | Let me just respond to that because I have great sympathy for the point you are making. Ideally, we should be symmetric for exactly the reasons that you state. The problem that I have with it is that I'm thinking of two separate potential monetary policy paths, which may be additive. In other words, if the situation is... | 160 |
fomc | 1,994 | But the minutes won't be seen until after the next meeting. | 12 |
fomc | 1,994 | That's true, but nobody will know the directive was asymmetric until they see the minutes. | 17 |
fomc | 1,994 | I know, so what we are talking about is how we are going to look in the future? | 20 |
fomc | 1,994 | Let me put it this way. As far as I'm concerned, the asymmetry is there only in the event that the economy or inflation begin to look much stronger than we at the moment anticipate. Now, if that occurs, one other possibility is that we can leave the directive symmetric and decide to go with a conference call. That's an... | 69 |
fomc | 1,994 | I would prefer that. It's more internally consistent. | 10 |
fomc | 1,994 | That's the equivalent, as far as I'm concerned. In fact, we are in such an important period of the expansion that I think the more we talk with each other, the better off we are. I find consultation frankly quite useful. President Jordan. | 50 |
fomc | 1,994 | Thank you. With regard to the early part of your remarks, I agree very much that we need to think differently about what influences the purchasing power of money. It has never made sense to me to think that growth per se reduces the purchasing power of money. That's really a phenomenon of the last few decades, when we ... | 752 |
fomc | 1,994 | First Vice President Minehan. | 6 |
fomc | 1,994 | Well, maybe you stand where you sit on these issues. Being in the First District and not being surrounded by signs that are as optimistic as those that give rise to the optimism in the other Districts, we at the Boston Bank have had a lot of arguments in getting ready for this Committee meeting. But they tended to be m... | 183 |
fomc | 1,994 | President Hoenig. | 4 |
fomc | 1,994 | Mr. Chairman, from our point of view, in terms of the evidence we have seen, there is a very good economic case for a move of 50 basis points now. I think we need to get to the higher level sooner rather than later. Based on listening to your remarks on the markets, however, I'm inclined to go with Governor Lindsey's p... | 183 |
fomc | 1,994 | President Forrestal. | 4 |
fomc | 1,994 | Mr. Chairman, as we try to make a policy decision, I suppose all of us to some extent are guided by the forecasts. As I look at the Atlanta forecast, I see very rapid growth for 1994, much stronger than the Greenbook, and inflation at the end of 1995 at clearly unacceptable levels. But as I said in my opening remarks, ... | 399 |
fomc | 1,994 | Governor Kelley. | 3 |
fomc | 1,994 | Mr. Chairman, I too believe that rates are too stimulative and I think we ought to seek a neutral policy stance, wherever that turns out to be. I also believe that the robust expansion hypothesis is probably the most likely, however robust may be defined. And certainly both of those points suggest that the funds rate s... | 179 |
fomc | 1,994 | But you would prefer symmetry? | 6 |
fomc | 1,994 | I would prefer symmetry. | 5 |
fomc | 1,994 | Okay. President Keehn. | 6 |
fomc | 1,994 | Well, it is a tough call. I can't remember a time that the call has been tougher than it is right now. I can come up with good arguments, at least in my own mind, for and against either 25 or 50 basis points. But on reflecting, I do come down agreeing that at this time the 25 basis point move is the appropriate thing t... | 259 |
fomc | 1,994 | President Stern. | 3 |
fomc | 1,994 | As most people have already stated, it certainly seems appropriate to act now. How far we ought to go and how fast we ought to try to get there, are the difficult questions. My best judgment is that we'll be at this for some time; it may well be that the funds rate has to go to 4 percent or more by the time we are done... | 249 |
fomc | 1,994 | President Melzer. | 4 |
fomc | 1,994 | As I've expressed before, my view is that monetary policy has been in a very stimulative posture over the last three years and, like Al Broaddus, I think the quicker we get to neutrality, the better off everyone is going to be. I think the cumulative effects of that policy stance are being reflected already in rising p... | 231 |
fomc | 1,994 | President McTeer. | 5 |
fomc | 1,994 | I favor 25 basis points, prefer symmetric, and would urge you to consider announcing our decision. | 20 |
fomc | 1,994 | Governor Phillips. | 3 |
fomc | 1,994 | I certainly think it's appropriate to tighten. For me the question is how to get there as fast as possible but without causing disruption in the markets. It seems important to me that the Fed not add to the uncertainty. So for that reason, I can certainly go along with 1/4 point increases. But I'd underline your sugges... | 158 |
fomc | 1,994 | Governor LaWare. | 4 |
fomc | 1,994 | Mr. Chairman, not to be facetious, but the 25 basis point approach sounds to me a bit like taking down that Sword of Damocles and inflicting the death of a thousand cuts on the economy. It dies slowly in anticipation of the next strike. Instinctively, I would prefer in the best of all worlds a 50 basis point move for t... | 232 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | Mr. Chairman, I must admit that I have been absolutely certain about the need for a move of both 50 basis points and 25 basis points at least as frequently as daily in the last several weeks. But I've come to the conclusion that your recommendation on the change is the safer course of action for us and sufficiently bol... | 492 |
fomc | 1,994 | Let me just say that I've been back and forth on this symmetric/asymmetric issue and, as far as I'm concerned, a conference call serves exactly the same purpose. Indeed, it might actually be preferable because we do gain benefits from having the symmetric language in the minutes. So I will support symmetric as well and... | 78 |
fomc | 1,994 | "In the implementation of policy for the immediate future, the Committee seeks to increase slightly the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, an... | 101 |
fomc | 1,994 | Mr. Chairman, I know we are somewhat bound by tradition, but there is a sentence that we really don't need about slightly more or slightly less reserve restraint during the intermeeting period. Why don't we just drop it? That'll take care of your observation that in fact it's slightly less probable that an easing is go... | 73 |
fomc | 1,994 | That probably will cause problems in the markets. | 9 |
fomc | 1,994 | Okay. | 2 |
fomc | 1,994 | The only problem is if we change the directive, is that we don't know the consequences of doing that. So let's not. | 25 |
fomc | 1,994 | All right. | 3 |
fomc | 1,994 | But it's an interesting question. Let's review that in the intermeeting period. Do you want to read the-- | 22 |
fomc | 1,994 | Yes, Mr. Chairman in the sentence that was circulated on the trade deficit, there was a slight mathematical error made where instead of saying somewhat larger than the average of the fourth quarter, it's supposed to say slightly smaller. [Laughter] Speaker(?). A slight error! | 55 |
fomc | 1,994 | The trade deficit on goods and services was slightly smaller in January--I made the mistake. | 18 |
fomc | 1,994 | Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus No President Forrestal Yes President Jordan No Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes | 40 |
fomc | 1,994 | We still have the question of the announcement, and I call on Don Kohn to discuss that. | 20 |
fomc | 1,994 | I'll try to be brief, Mr. Chairman. Drawing on the work of the subcommittee, Messrs. Boehne, Kelley, and Melzer considered a couple of options for announcing the decisions of the Federal Open Market Committee. What they hit on finally was that the best bet was to announce changes in our instrument settings much as we d... | 749 |
fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | Mr. Chairman, I have no problem at all with anything Don said as far as the statement and when to announce it are concerned. But this Committee is going to be considering other issues regarding our openness in the months ahead. And I don't see any advantage to the Committee in separating this issue, which is a pro-open... | 180 |
fomc | 1,994 | You're just suggesting that it would be in the form of a provisional statement similar to the last time. | 20 |
fomc | 1,994 | Or that you make the statement. | 7 |
fomc | 1,994 | Meaning in other words that it's not an irrevocable decision of the Committee but of the Chairman? | 19 |
fomc | 1,994 | That is correct. Yes. | 6 |
fomc | 1,994 | President Melzer. | 4 |
fomc | 1,994 | Alan, I wanted to make a couple of comments. First of all, I favor announcing our actions promptly whether they are taken at meetings or between meetings. My preference would be to make this change when we act on the other disclosure issues that Larry Lindsey talked about, although I can accept separating them. I do th... | 258 |
fomc | 1,994 | The same thing could happen with the term "reserve restraint." In saying a slight change, the "slight" may equivocate-- | 27 |
fomc | 1,994 | Yes. | 2 |
fomc | 1,994 | Tom, let me just say that that's an interesting issue, but that's a very major question and I would hate to have that decision made at today's meeting. I almost prefer to stay with Governor Lindsey's suggestion and then when we get to the final decisions make that judgment. | 54 |
fomc | 1,994 | Okay. I'm just expressing some views at this point. The other point I would make is that I'm not sure I agree with what Larry Lindsey was saying. We are doing something here that, if it's done well and announced properly, will have a very positive public effect. Our practice is going to lock us into that because my sen... | 219 |
fomc | 1,994 | President Forrestal. | 4 |
fomc | 1,994 | Mr. Chairman, I'm not against disclosure but I would repeat what I said last time, which is that we have not really had an opportunity in this Committee to discuss this fully. There are a number of issues surrounding this disclosure matter. Tom has just brought up one of them; there are others. So from a procedural sta... | 232 |
fomc | 1,994 | Governor LaWare. | 4 |
fomc | 1,994 | I would have said substantially what Bob Forrestal said. | 11 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | I have a very strong preference to make an announcement in some form. On this particular afternoon, whether it's the Chairman or whether it's the Committee making the announcement has mainly the significance that if the Chairman does it, it doesn't lock the Committee into having made a decision to do it. So I think tha... | 243 |
fomc | 1,994 | President Jordan. | 3 |
fomc | 1,994 | I support the subcommittee's recommendation. And I think the latter part of Tom Melzer's remarks are right on. We could say that this is twice in a row, that it's not permanent and it's just not a precedent, and that we have still have a card to play and we might not do this in the future. Nobody would believe it. | 71 |
fomc | 1,994 | No, I don't think Larry is saying anyone will believe it. I think what he has in mind is that it's useful when we intend to have a whole package to put it all together. That's what I think his-- | 44 |
fomc | 1,994 | Are we going to have that package by May? Otherwise, we are going to be faced with maybe three meetings in a row of saying that this is a temporary procedure and it's not-- | 37 |
fomc | 1,994 | Well, that's a good point. And the answer is possibly. | 13 |
fomc | 1,994 | It's eight weeks until the next FOMC meeting. It's the longest period we experience between meetings. | 20 |
fomc | 1,994 | I would say we have a good shot at it by May. In fact, precisely for that reason it would be useful. President McTeer. | 30 |
fomc | 1,994 | One of the benefits of an immediate announcement is that it eliminates any perception of leaks, so I would suggest that we always do it at the end of the meeting rather than have a hiatus. | 38 |
fomc | 1,994 | President Broaddus. | 5 |
fomc | 1,994 | I would favor announcing it now. | 7 |
fomc | 1,994 | President Keehn. | 4 |
fomc | 1,994 | I'm very much in favor of announcing it. Whether it's an announcement from the Chairman or the Committee I think is immaterial. If we do it today, which I think we should, we will have established a precedent and we will have to continue. But I think it's a constructive change. | 58 |
fomc | 1,994 | Governor Kelley. | 3 |
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