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fomc | 1,994 | Ever? | 2 |
fomc | 1,994 | I don't believe so. | 5 |
fomc | 1,994 | Well, it might, though, in tax terms. The fact is that our tax system isn't fully indexed; the effective corporate tax rate rises as inflation goes up, and that would raise the cost of capital, reduce investment, and lower productivity over the very long run. That, I think, is probably embodied in our current model. An... | 112 |
fomc | 1,994 | But if I heard you right, we never have a net loss in output resulting from a choice to go for inflation? | 24 |
fomc | 1,994 | It does not take, in terms of a normal simple cost of capital calculation, a very big inflation differential to get you a net loss in the present value in the long run. | 36 |
fomc | 1,994 | The argument as to why we get a net loss is "the Federal Reserve will react--do something." But the question is, we are the Federal Reserve and why should we react if that's true? | 40 |
fomc | 1,994 | If we don't believe that the present value of output in this economy will be lower by letting inflation alone, then we should let inflation go up. It's as simple as that. Is there anyone around the table who thinks that by printing money, the present value of output of this economy will go up? If there is, I will join ... | 78 |
fomc | 1,994 | Oh, no, you don't mean that statement as you said it! | 14 |
fomc | 1,994 | Why not? | 3 |
fomc | 1,994 | Because the Federal Reserve Act directs us to maintain stable prices. We are created to do that. | 19 |
fomc | 1,994 | If we can prove-- | 5 |
fomc | 1,994 | What you said was: If anyone around here believes that, I will vote to lower the discount rate. | 21 |
fomc | 1,994 | Yes. I was surprised that Alan bought that. | 10 |
fomc | 1,994 | If anyone convinces you-- | 6 |
fomc | 1,994 | That's true. Do we believe that printing money will increase the present value of output? | 17 |
fomc | 1,994 | Yes, I think we would. I believe that printing money will give the economy a temporary high that will not last and therefore in the integral sense that you said, yes, you get a larger integral of output over an historical period, if you never decided to end it--if you never said, when you got to 10 percent inflation, w... | 85 |
fomc | 1,994 | Yes, but why would you conclude that at that point when, because as Ed Boehne says, 11 percent is still better? | 28 |
fomc | 1,994 | If 11 percent is better than 10 percent, if there's no cost to inflation--I am a little bit surprised at the tenor of this conversation around here! [Laughter] There is some academic content that is-- | 45 |
fomc | 1,994 | In all seriousness, the question really gets to the models. Why would you believe that there is a cost of increased inflation from the models? | 28 |
fomc | 1,994 | Isn't there a lot of cross-country and cross-time evidence that once you get past very low rates of inflation, there are costs in terms of growth and efficiency at higher levels of inflation? Higher levels of inflation tend to be more variable; you get a lot more uncertainty; people have to interact with the tax system... | 87 |
fomc | 1,994 | I am guilty of this whole operation and the clock is running, and I request your forgiveness for opening this issue up. But sometimes we have to have a little fun, I guess. Bob Parry, do you have a question? | 47 |
fomc | 1,994 | Yes, I have a somewhat different question. I want to ask about an earlier comment that you made that you had a preference for not changing the ranges except for perhaps the debt range in 1995. I think we're all well aware of the problems in terms of the significance of the growth in the aggregates. But as I read the Bl... | 167 |
fomc | 1,994 | I think with respect to M2 and M3 that the deviations from different versions of P* are such that we have correctly abandoned those aggregates, but hopefully they will come back and be useful. If they come back and are useful, we would assume M2 would go back to a zero trend in velocity, which essentially would suggest... | 456 |
fomc | 1,994 | Just a follow-up question: It seems to me that in your testimony you could make the point that you just made about M2 and M3, saying that, if velocity returns to normal, those ranges would be consistent with our long-term objectives with regard to inflation. You could then make a similar argument with regard to debt, i... | 126 |
fomc | 1,994 | I agree with that. Tom Hoenig. | 9 |
fomc | 1,994 | Mr. Chairman, thank you. I have two comments. First, on the debt aggregate, I tend to agree with your suggestion for bringing that range down. As Bob Parry was saying, a lower debt range would make it more consistent with the monetary figures. If that could be done, as Don described, without raising other issues or hav... | 75 |
fomc | 1,994 | Do we want to leave the so-called sleeping dog alone? | 12 |
fomc | 1,994 | That is the other option, yes. The second thing I want to comment on, though, is your reference to the 1996 projections. I very much agree with you there. It is, I think, unwise for us to be presenting specific projections into 1996 because they are often looked at as goals and also lead to the presumption that we know... | 128 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | I have just two comments. The first is on whether we should change the debt range. I have a very strong feeling that that is a good thing to do but that the likelihood is that it would take on a life far greater than it has any reason to have. You will recall, Mr. Chairman, that when you presented your Humphrey-Hawkins... | 122 |
fomc | 1,994 | That's a good point. | 5 |
fomc | 1,994 | I think a change in the debt range would almost certainly have the same fate. Secondly, just briefly on my pet theory on the problems of inflation, we tend to think--and we should because our job is economic policy and the economic results--in terms of the economic effects of inflation. But inflation also has socio-pol... | 246 |
fomc | 1,994 | I must say that the objection you made with respect to the debt range goes to the point, and I think you are probably right. President Jordan. | 30 |
fomc | 1,994 | I was going to ask whether this is the time to talk about the 1995 and 1996 projections, or will you have a separate go-around about that later? | 35 |
fomc | 1,994 | Let us just hold up on that. Unfortunately, our discussion has gone astray, but let us see if we can get questions out of the way, then hopefully go back formally to the agenda. President Keehn. | 44 |
fomc | 1,994 | Mr. Chairman, I agree with your comments with regard to M2 and M3. The point on the debt aggregate that Bill raised made the comment that I was going to make, but I really wonder what the correlation has been over a period of time between the debt aggregate and output, prices, and the like. Has there been a reasonable ... | 71 |
fomc | 1,994 | It was very, very good until we started to target it! [Laughter] The nominal GDP/debt ratio fluctuated around a fairly constant level until the early '80s, and then there was the explosion of debt in the '80s. In the last few years, debt has come back much more into line with nominal GDP, and our projection, as Mike sh... | 135 |
fomc | 1,994 | Hearing that, it seems to me that Bill's comment is particularly appropriate. By focusing any attention on this, we are creating something that could be very awkward in the long run. | 37 |
fomc | 1,994 | I am becoming convinced. Governor Blinder. | 9 |
fomc | 1,994 | Let me address the two questions that you raised, Mr. Chairman. On moving the range for the debt aggregate, I don't feel very strongly about that. I feel mildly receptive toward the "let sleeping dogs lie" philosophy. But it's not something I feel strongly about; one can make a case the other way. I want to raise the p... | 456 |
fomc | 1,994 | Let me ask you this. These numbers, if we could make sure they are conceived of as forecasts, are benign, but releasing them would set a precedent, which would then have to be continued in the future. There are going to be occasions when I would suspect the judgment of this Committee as economic forecasters, as profess... | 117 |
fomc | 1,994 | Yes. | 2 |
fomc | 1,994 | And we may not have the capability of doing so. | 11 |
fomc | 1,994 | I think that's a perfectly good question. I think it's likely--it wouldn't necessarily always happen--that in the event that we were forecasting a rise in unemployment over the coming two years, we would probably be easing monetary policy; possibly we wouldn't. | 49 |
fomc | 1,994 | But maybe not. | 4 |
fomc | 1,994 | Yes, maybe not. I don't disagree with that. | 11 |
fomc | 1,994 | President Forrestal. | 4 |
fomc | 1,994 | I'd just like to comment on a couple of these issues that we have been discussing. First of all with respect to the ranges, I agree with you entirely that we ought to leave M2 and M3 alone--I assume you included M3 with M2. I don't think, given the uncertainty surrounding those aggregates, that there's any purpose to b... | 412 |
fomc | 1,994 | Incidentally, President Jordan, I hoped we would get back on the track, but I am afraid we are in the policy discussion; you're on. | 30 |
fomc | 1,994 | In principle, I would be in favor of publishing information on the inflation objectives out to 1998. But if a forecast of higher inflation is what we are going to produce, again, I am in favor of not even publishing 1995. I think it is a mistake for this Committee to put out numbers saying that we expect the inflation ... | 210 |
fomc | 1,994 | President Melzer. | 4 |
fomc | 1,994 | Alan, I am assuming now that you want our views on what we would do with the ranges and these other issues; I am in that mode. I would reaffirm the existing ranges for 1994 and I would set the same ranges for 1995. I would be willing to adjust the debt aggregate. I think we could deal with any uncertainties that that m... | 904 |
fomc | 1,994 | President Stern. | 3 |
fomc | 1,994 | With regard to the ranges for the monetary aggregates, I certainly agree with those who suggest just leaving them as they are, including the debt variable. I don't see very much to be gained by fooling around with those right now for the reasons that have been cited. With regard to the question about Senator Riegle's r... | 212 |
fomc | 1,994 | Governor Kelley. | 3 |
fomc | 1,994 | Mr. Chairman, on the aggregates first, I am right where I seem to hear a lot of other people are. For 1994, I would not change them. I don't believe in changing targets or for that matter budgets in midstream unless there's some very, very compelling reason to do so, and I certainly don't see that here. In the same vei... | 356 |
fomc | 1,994 | President Broaddus. | 5 |
fomc | 1,994 | Mr. Chairman, I would agree with your proposal not to change the M2 and M3 ranges. I don't feel strongly on the debt issue, but I guess, on balance, I would favor reducing it on the same sort of grounds that we had for setting the M2 target where it is now. Since debt tracks nominal GDP at least over the very long run,... | 214 |
fomc | 1,994 | Governor Phillips. | 3 |
fomc | 1,994 | I would leave unchanged the ranges for M2 and M3 for 1994 and 1995. Again, I think that any change would imply more than we know and exaggerate their importance. If the aggregates were performing properly, they would already be set appropriately for sustainable growth, so I don't see any case for moving them. With resp... | 260 |
fomc | 1,994 | President Boehne. | 5 |
fomc | 1,994 | I would retain the M2 and M3 targets for 1994 and I would keep them the same for 1995. I think we ought to declare a victory on the ranges that we have for M2 and M3. We have them down now to where they are consistent with what we want to do longer term. I don't think we are skillful enough at forecasting to factor in ... | 473 |
fomc | 1,994 | Thank you, I think. [Laughter] | 10 |
fomc | 1,994 | President Parry. | 4 |
fomc | 1,994 | On the aggregates, I would leave the M2 and M3 targets at their current ranges for all the reasons that have been mentioned. I do have a preference for lowering the debt range in 1995, since I think there is a good reason in that we believe it is more consistent with the other ranges we have set. I also don't think it ... | 124 |
fomc | 1,994 | Governor LaWare. | 4 |
fomc | 1,994 | Mr. Chairman, I would prefer just to leave all three of these ranges the same rather than change them. I don't see any great advantage in lowering the debt range, and it may indeed create something that we would find awkward to deal with in the future if people attached more importance to it than we do. I don't see a s... | 353 |
fomc | 1,994 | President McTeer. | 5 |
fomc | 1,994 | Mr. Chairman, I would leave M2 and M3 alone. I believe I would be inclined to reduce the debt aggregate, and just say the reason is to make it consistent with the other monetary aggregates and recent flows, not make a big deal out of it. I agree with those who say that it's not the same kind of concept as the real fed ... | 346 |
fomc | 1,994 | First Vice President Minehan. | 6 |
fomc | 1,994 | One of the problems of being on the end of this list of people being called is that all the other people say the good stuff! I am also in agreement with the discussion on the Ms; I would leave them the way they are. I agree with the comments, whoever made them, that it has taken us a long time to get the ranges down to... | 347 |
fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | On M2 and M3, don't bother changing them. Changing the debt aggregate range isn't going to make much difference, but I think we should probably lower it because I think it's a proxy for nominal GDP. On forecasting, I think John LaWare had a very good point. I remember what happened to me when I was on the staff at the ... | 305 |
fomc | 1,994 | President Keehn. | 4 |
fomc | 1,994 | In my earlier comments, I didn't remark on the forecast for 1996. I would be opposed to going forward that far unless we really have to. It seems to be awfully far out on the forecasting horizon, and I far prefer to state our expectations in terms of our long-run objectives. | 60 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | I am in favor of alternative I across the board for both 1994 and 1995. Perhaps, living in the city where financial journalists swarm, I am not at all convinced that, by leaving M2 and M3 alone and changing the debt ratio, we would not have much more discussion of the meaningfulness of that move than anybody in this Co... | 301 |
fomc | 1,994 | Before we go further, Governor Kelley, I failed to put down your position on the debt issue. | 20 |
fomc | 1,994 | I would leave the debt range unchanged for now, Mr. Chairman, but I would like to see us do some work--perhaps the staff could give us a paper--on the implications of changing it to a lower level for consideration at our February meeting. I think that would be very helpful. | 59 |
fomc | 1,994 | I am sorry, President Jordan, I didn't get answers to questions on the ranges and 1996. As I understood you on 1996, it's the goals issue. You prefer not to do that but you do think we ought to think more seriously about it. Have I got that correct? | 60 |
fomc | 1,994 | Yes. The numbers are as Don indicated. | 9 |
fomc | 1,994 | You would vote no on the specific Riegle request? | 12 |
fomc | 1,994 | That is right. | 4 |
fomc | 1,994 | And on the ranges? | 5 |
fomc | 1,994 | I wouldn't change them and I don't see what is wrong with letting the journalists write stories about debt. If they want to write the stories about the governors having green peas for lunch on Thursdays and that is the key to monetary policy, I don't see the harm in that. They have to fill up the space anyway. So I don... | 70 |
fomc | 1,994 | So you would be inclined to lower the debt range. | 11 |
fomc | 1,994 | I really don't care about the debt aggregate. | 9 |
fomc | 1,994 | Who released that information on the governors' lunches? [Laughter] | 14 |
fomc | 1,994 | It was a week after the lunch! | 8 |
fomc | 1,994 | Or was it the week before! | 7 |
fomc | 1,994 | Before we get to any formal vote, let me just see what it is that we should be voting on. It's pretty clear that there is a consensus to leave the M2 and M3 ranges unchanged. The other two issues are really interesting. There seems to be a marginal inclination to go to a lower debt range--most of the voting members fav... | 499 |
fomc | 1,994 | Mr. Chairman, I heard a marginal preference among those talking about debt aggregates for lowering the range for next year but leaving it unchanged for this year. SEVERAL. Yes. | 36 |
fomc | 1,994 | Yes, I didn't hear any discussion about the debt aggregate for 1994. | 16 |
fomc | 1,994 | Okay. | 2 |
fomc | 1,994 | Let me first formally put on the table for a recorded vote that we leave the ranges for M2 and M3 unchanged. Why don't you read that part of the directive for 1994. | 39 |
fomc | 1,994 | I am reading from page 26 in the Bluebook, or if you are looking at the draft directive version, it is at the bottom of page 2, line 46. The first general sentence, of course, stays the same. "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustaina... | 166 |
fomc | 1,994 | That's it. | 3 |
fomc | 1,994 | We need the debt sentence. | 6 |
fomc | 1,994 | We haven't got there yet. In other words, we can vote on this and then we can vote on 1995. | 25 |
fomc | 1,994 | Well, he needs to read the debt sentence for 1994. | 14 |
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