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fomc
1,994
I support your suggestion, Mr. Chairman, with "B" asymmetric. As far as an announcement goes, I like Ed Boehne's suggestion also. I would like to add that I don't think it's desirable that we tie ourselves into knots here trying to define asymmetry. It's not necessary for us to achieve precision there. To me, it's just...
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President Stern.
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For the moment I am pretty comfortable with where we are as well as with the way I see things unfolding. So I would favor alternative B with a symmetric directive, which is my usual preference. Having said that, I do think we need to be careful here, though that is hardly new for monetary policy. There has been a lot o...
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President Hoenig.
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Mr. Chairman, I would point out that even our more pessimistic projections suggest that the economy is continuing to build some inflationary pressures and that they will occur through the end of the year. And so I think there is a need to move. It's not a matter of whether but when. I agree with you in the sense that I...
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Governor Blinder.
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I think that alternative B, which is to do nothing right now, is the prudent course. When you are into the game of fine-tuning, which we are forced into once we get this close to capacity, there is always a danger of oversteering. I think we should be mindful of that. I see the risks, as I think Bob Forrestal and Ed Bo...
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Larry, what was your view on the announcement?
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I think we have to make a terse announcement.
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Okay. Governor Phillips.
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Well, based on what we know now, I think that we will have to tighten more at some point. I really don't see the case now for 1/4 point moves, so when we do move I think it should be 1/2 point. I don't think our moves should be prompted by foreign exchange situations, against the yen specifically. I can go along with a...
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President Melzer.
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Alan, I forgot to comment on the announcement. I agree with announcing something. I guess I am wondering whether, if we just had Joe Coyne, as spokesperson for the Fed, contact the wire services and say that the meeting was concluded and that no actions were taken, that might give us a little more room in terms of sett...
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I think that's basically what we will do.
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That is what we have been doing.
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It would be Joe.
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Well, no, it actually has been a statement by the Chairman in the earlier--
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I think what I have suggested for today, although I have not been explicit, is that Joe would do it.
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As spokesperson for the Fed or whatever.
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In the past when we have had meetings he said the meeting was still going on or the meeting was about to be over, or something like that. He has done that in the past.
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I just didn't think it would be a good idea to have a statement in your name on this.
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Yes, I agree with that. There seems to be general unanimity on the announcement issue; we will work something out. There also was a fairly broad consensus for "B" and a modest majority for asymmetry. So, why don't we formulate that in the text.
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"In the implementation of policy for the immediate future, the Committee seeks to maintain 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, and monetar...
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Call the roll.
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Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Broaddus No President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey No* President Parry Yes Governor Phillips Yes
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The next meeting is on August 16 and lunch is now served. *Secretary's note: At the end of this meeting, Mr. Lindsey indicated to Chairman Greenspan that his dissent on the operational paragraph was based on a possible misunderstanding of the implications of the bias in the directive. His dissent was from a directive t...
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Before we get under way today, I want to welcome Governor Janet Yellen who is attending her first Committee meeting.
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Thank you.
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She was exposed to her first Board meeting yesterday. You survived that, and I wish you well today.
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Thank you; it's good to be here.
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Cathy Minehan is at her first meeting as President of the Boston Bank and we congratulate you.
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Thank you.
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Finally, while Bill Conrad has been here before, this is the first time he is representing the Chicago Bank. So I have many announcements--more than usual for this organization. Let's start by having somebody move to approve the minutes of the July 5-6 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. Peter Fisher, would you take us through the foreign operations Desk report?
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Thank you. [Statement--See Appendix.]
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On that there are two ongoing thoughts that are supposed to be insights into what happened. First is the notion that the moves on the part of those two central banks were suggestive of the fact that declines in European rates had come to an end. The other is that because the public debt/GDP ratio in both countries is e...
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I think the market's immediate reaction was more the first of the two you mentioned. I think that the extremity of the reaction, if I can distinguish the fact of the reaction from the extent of the move once it got going, was more of a gnawing anxiety about the general fiscal condition of Europe--of all the European co...
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Further questions for Peter?
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I have one, Peter; it's sort of in two parts, but they are part of the same question. Markets tend to latch on to things in faddish ways. Something was almost implicit in what you said, and I want to see if you want to make it explicit--it's about the fad that dollar/yen dances to the U.S./Japan trade talks or events, ...
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I think the market is faddish; I'll agree with you on that. I think there is an opportunity for the market to be less anxious about the trade talks. I'm of the school in interpreting the market's reaction to trade talk announcements that believes the market is biased in its reactions. When the announcements tend to be ...
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Thank you.
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Any further questions for Peter? If not, Joan Lovett will you carry us through domestic operations?
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Thank you, Mr. Chairman. [Statement--See Appendix.]
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Questions for Joan? If not, would somebody like to move to ratify the actions of the Desk since the last meeting?
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So move.
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Second.
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Without objection. Let us move on to the economic situation and Mike Prell.
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Thank you, Mr. Chairman. [Statement--See Appendix.]
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In looking at the divergence between the permits and the starts in this morning's release, as you know, it could possibly be that we had a significant increase in non-permit single-family starts. Do we have those data yet?
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No, I don't have information on that. It's very clear the ratio of starts to permits for the single-family sector is extended well beyond the norm. Given the better statistical reliability of the permits series, I think that this argues pretty strongly for starts likely to have been less robust than this report suggest...
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Any further questions for Mike or, I might say for that matter, for Ted Truman who has no formal remarks to make? President Parry.
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Mike, in the Greenbook forecast inventory investment comes down to more traditional levels. And I think as a result the inventory/sales ratios, if I remember them from Part II of the Greenbook, also come down. Would you comment on the risks to the assumptions about inventory investment because it seems to me possible a...
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I think it's a reasonably balanced forecast, given my suspicion that inventory investment in the second quarter may have been overstated. But I wouldn't want to make too big a point of that. The May figures held up very well; they were raised in the revised figures. To date, there hasn't been any evidence there. But we...
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Governor LaWare.
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I'm a little puzzled by the projected levels of consumption expenditures and am trying to reconcile them with the relatively high continued levels of housing starts projected in the Greenbook as well as the further increase in light motor vehicle sales to the highest level since 1988. That just doesn't seem consistent ...
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A compound question here, I think.
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A confounded question, I guess.
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No.
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I'm confounded at any rate.
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Let me try to be helpful with a few, brief comments. I think if we had to do the single-family housing construction forecast again today, we would still have in essence the kind of pattern we have, with some further erosion of single-family housing construction in the near term and then some firming over the course of ...
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President Stern.
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I have a couple of questions, Mike. The first one has to do with the price forecast. How much of that is empirical as opposed to judgment? I ask because some preliminary work we've done suggests that if you look at capacity measures versus measures of price or wage inflation, they look pretty good into the early 1980s ...
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Well, we have at least 59 varieties of, or is it 57, I don't know, [Laughter]--57 varieties. The number has crept up over the years, of econometric models. So, we probably can encompass a pretty wide range of outcomes, given the conditioning assumptions of the degree of slack in labor and product markets, the accelerat...
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My second question--as I understand the forecast, you have long-term interest rates coming down next year, is that right? [Mr. Prell: Yes.] How much precedent is there for a decline in long rates like that in circumstances where you have stable short-term rates and a continuing expansion? Obviously, we had some periods...
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I think you probably cited one period in which we could find it in the 1980s, but I'd have to reexamine that record. I'm not sure what precedent one would look for: What we are anticipating in this forecast is a moderation of economic expansion that extends this cyclical upswing with inflation not picking up at all. We...
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Of course, we did have a period in the second half of 1988 and early 1989 in which short-term rates were moving up smartly and long-term rates were doing nothing.
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President Jordan.
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Mike, I'm interested in your confidence levels for various parts of the forecast. Where are the surprises likely to be? If one starts a year ago, in your assessment in August and September as to the year ahead, at that point one of the things you talked about was a middling expansion and maintenance of the low interest...
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I suppose I should have thought ahead to this kind of question; it comes up frequently. I don't really have any clearcut answer jumping into my mind at this point. I think there are risks that one could identify in every sector and I could identify them as having potential on both the upside and downside. So I don't th...
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Governor Blinder.
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Mike, I have just a simple question about the news since the last Greenbook. You mentioned that June and July payroll employment came in stronger than you expected. Do you happen to recall what was built into the previous Greenbook for June and July?
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My recollection is that we were anticipating that the increase in the latest month would have been 50,000 or so less.
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July?
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Right.
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Including the 30,000 rise in the bias adjustment? If I'm not mistaken, the bias adjustment changed from Q2 to Q3.
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Without an explicit view about the bias adjustment. I think the bigger surprise was in June where we got a whopping increase in employment, and we were, as I recall, anticipating something again more in the 200,000 area. So I think, we have had a substantial upside surprise for those two months.
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Say, more than 150,000 jobs or something?
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I think that is the order of magnitude.
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Okay, thanks.
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Any further questions for Mike or Ted? If not, would somebody like to start the round table?
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Mr. Chairman, the reports we have been getting on the District suggest that overall economic activity in our region is still growing at a healthy pace. My personal sense is that there may have been some moderation in the rate of expansion in our region from earlier this year, but not much and there may not have been an...
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President Forrestal.
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Thank you, Mr. Chairman. Economic activity in the Sixth District is expanding moderately and we continue to out-perform the nation as a whole. The contacts that we have had since the last meeting indicate that their businesses really are doing quite well and there is very clearly an attitude of optimism both among the ...
591
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That suggests that the literacy rate isn't very high!
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This may be unique to our District, I don't know; but certainly it's been reported almost universally among the people that I've talked to. It hasn't translated so far into a lot of wage increases, but I'm sure that will come. Just a word on the floods: The damages from the floods in south Georgia and a few parts of Fl...
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President Parry.
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Mr. Chairman, may I simply improve upon my answer to Governor Blinder? In the latest data, there were upward revisions to April and May payrolls from what we were aware of at the time of the June Greenbook, a total of about 100,000. The increment to what we were expecting in June and July is about 150,000. So the total...
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Thanks.
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President Parry.
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Mr. Chairman, trends in the Twelfth District economy are little changed since our last meeting. Employment has grown 1 percent during the past year with strong gains in many parts of the region offset by flat conditions in California. Idaho, Nevada, and Utah remain the three fastest growing states in the nation in term...
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President Hoenig.
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Mr. Chairman, the Tenth District continues to grow at a very healthy pace. Construction activity remains strong, although perhaps somewhat slower than the boom environment we saw just a few months ago. Manufacturing continues to improve, especially in durable goods, and we have seen continued employment growth there. O...
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President Minehan.
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Mr. Chairman, the New England economy continues to grow. June employment was about 2 percent above the year-earlier level, and the regional unemployment rate is about the same as the national average, with rates in several states well below the national figure. Looking at the region, there are big differences state to ...
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I think DRI is perhaps in the lower part of the spectrum right now.
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Yes.
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I think they have about a half percentage point increase in the funds rate in the second half of this year and nothing after that.
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