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fomc | 1,994 | Thank you, Mr. Chairman. With regard to the national picture, I'd like to associate my comments with the very eloquent analysis of President McDonough; he was right on target. With regard to the staff forecast, I would only add the issue of timing. We do not know in what quarter the economy will slow down, but we do kn... | 397 |
fomc | 1,994 | Oh heavens! | 3 |
fomc | 1,994 | You are in great shape today! | 7 |
fomc | 1,994 | That is what happens when you are awakened at 2:00 and 4:00 in the morning by a one-year old! The other part of my trip, I had both our bureaucracy and the Rumanian bureaucracy prepare a serendipitous schedule. The first part of the week I was in Paris and I was able to go on from there after meetings. I think both in ... | 301 |
fomc | 1,994 | Governor LaWare. | 4 |
fomc | 1,994 | Mr. Chairman, the Greenbook outlook for dramatically increased short-term rates and a marked slowing in the rate of economic growth accompanied by rising inflation and increased unemployment is not a particularly appealing one. It would be much more attractive if the inflation projection was one that reflected greater ... | 248 |
fomc | 1,994 | Governor Kelley. | 3 |
fomc | 1,994 | Mr. Chairman, it seems to me the situation is unequivocal. At this point in the morning, I have very little to add that's useful. Virtually every bit of information that we have gotten and certainly the reports around the table this morning have indicated that we have an extremely strong expansion. It may be accelerati... | 166 |
fomc | 1,994 | Governor Phillips. | 3 |
fomc | 1,994 | Thank you. The momentum of the real economy certainly seems to be stronger in all sectors than was anticipated earlier. I think that the revisions we have seen recently in a number of forecasts and, for example, the recent benchmark revision in the employment level, demonstrate that there was more momentum than we earl... | 815 |
fomc | 1,994 | Thank you. President Jordan. | 6 |
fomc | 1,994 | I'll say very little about the District. In my District contacts, I raised two questions that I thought were of some use in the period since the last meeting. One was about labor market conditions and the persistent comment about shortages, tightness, especially for unskilled, semi-skilled workers and so on. I asked wh... | 1,198 |
fomc | 1,994 | Governor Yellen. | 4 |
fomc | 1,994 | Since our last meeting, the evidence has continued to accumulate that there is enough momentum in aggregate demand to carry the economy past potential output. We have yet to see much slowdown in the interest-sensitive sectors, and it may well be that easier lending terms have offset somewhat the impact of higher intere... | 918 |
fomc | 1,994 | Governor Blinder. | 4 |
fomc | 1,994 | Until about three minutes ago I thought that, even though I was speaking last, I would have some things to say that had not been said before. But that is less true now than it was a few minutes ago. Let me start at the point where Janet Yellen left off. I thought it was a remarkable feature of the Greenbook projections... | 1,840 |
fomc | 1,994 | Thank you. With that, why don't we adjourn for coffee? | 14 |
fomc | 1,994 | Mr. Chairman, as I think Governor Lindsey already remarked, the decision facing the Committee at this meeting would seem to be not whether to raise interest rates but by how much. | 35 |
fomc | 1,994 | Let me tell you this. I thought that the two great remarks made previously were: One, Governor Lindsey's half bridge; and, two, Governor Kelley's teakettle. They have brought the theoretical structure of monetary policy forward immensely. [Laughter] | 52 |
fomc | 1,994 | The teakettle is probably a better metaphor than the automobile metaphor we so often use--steering back and forth and tapping on the brakes. (Statement--See Appendix.) | 34 |
fomc | 1,994 | Questions for Don? If not, let me get started. I must say the discussion this morning has been one of the best discussions I have heard around this table in quite a long while. I certainly don't have much to add to it. Let me just say, however, that inventories in my view are going to be the crucial area that will dete... | 1,797 |
fomc | 1,994 | Mr. Chairman, you haven't mentioned the discount rate. | 11 |
fomc | 1,994 | As I judge the Board's general view, a recommendation to increase the discount rate by 75 basis points would be approved. Implicit in that would be a recommendation that the full 75 basis points gets passed into the funds rate. The Board will be discussing the discount rate after this meeting. President McTeer. | 64 |
fomc | 1,994 | Mr. Chairman, in my opinion strong action is warranted today, but I don't think we should prejudge future actions. I, for one, particularly don't want to commit today to a series of increases that add up to 150 basis points and that will result in a hard landing as depicted in the Greenbook. So, I would support your re... | 261 |
fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | Mr. Chairman, I agree with your analysis and your recommendation. I also agree with the points that Governors Yellen and Blinder made earlier. I hope that we won't go 150 basis points, because I think your analysis was on the money. The question I have to ask myself is how best to avoid that. I think the best way is by... | 135 |
fomc | 1,994 | President Minehan. | 4 |
fomc | 1,994 | I'm in full agreement with your recommendation, Mr. Chairman. My comments earlier were fairly strong and I'd like to put them in context. First, I agree with the comments that both Governors Yellen and Blinder made that monetary policy lags being what they are, we won't see the full effects of what we have done already... | 240 |
fomc | 1,994 | President Parry. | 4 |
fomc | 1,994 | Mr. Chairman, since our last meeting, the economy certainly has shown considerable momentum and labor and product markets now appear to be extremely tight. I feel that if we don't act strongly, it seems likely that the economy will substantially overshoot its potential and that inflation will take on a rising trend. It... | 174 |
fomc | 1,994 | I must say I personally agree with both of those recommendations. President Forrestal. | 16 |
fomc | 1,994 | I came into the meeting, Mr. Chairman, with a slight preference for a 50 basis point rise, but having heard the discussion around the table and your analysis, I am strongly in support of the 75 basis points. As I said earlier, I think that the 150 basis point increase suggested in the Greenbook is too much. I hope we c... | 81 |
fomc | 1,994 | President Hoenig. | 4 |
fomc | 1,994 | Mr. Chairman, I agree with your recommendation completely. I am convinced that the sooner we move on this, the less we will have to move later. I am not at all inclined to say that we have to look to a 150 basis point increase at any time. Right now the 75 is before us; I think that it is a wise move. I also think we s... | 116 |
fomc | 1,994 | I think that the preliminary view would be a statement that is pretty bland and promises nothing and doesn't mention the dollar. President Broaddus. | 28 |
fomc | 1,994 | I support your recommendation, Mr. Chairman, and I would associate myself with both of Bob Parry's recommendations and yours. | 25 |
fomc | 1,994 | Governor LaWare. | 4 |
fomc | 1,994 | I support your recommendation. | 5 |
fomc | 1,994 | President Melzer. | 4 |
fomc | 1,994 | I support your recommendation also, Alan, based on what I have heard about emerging inflationary pressures and also the importance of credibility and the fact that if we have credibility, it will reduce the long-term cost of keeping inflation and inflation expectations under control. Just a couple of comments on things... | 372 |
fomc | 1,994 | President Boehne. | 5 |
fomc | 1,994 | Earlier in the year when we knew that we had to begin to tighten, I think there was a case on real sector grounds that we probably should have moved by more than we did. I think you argued rather persuasively, Mr. Chairman, that we had a bubble in financial markets and that we had to deflate that rather slowly. Otherwi... | 313 |
fomc | 1,994 | Governor Phillips. | 3 |
fomc | 1,994 | I don't know whether or not 150 basis points is ultimately needed. It seems to me that that is fairly large, particularly in view of the monetary aggregates. I wouldn't want to prejudge. I do support 75 basis points, symmetric. It strikes me that 50 is not enough. I think the markets would be immediately looking for th... | 161 |
fomc | 1,994 | Monetary policy insights by analogy are getting to be legend! | 13 |
fomc | 1,994 | I resisted analogies in my original comments, but I couldn't this time around! | 16 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | Mr. Chairman, I support your recommendation with considerable enthusiasm. The New York Bank has had a recommendation in since November 3 for a 75 basis point increase in the discount rate. I am very pleased with that piece of it. I think 50 would be too little and 100, for the reasons that Ed Boehne suggested, would be... | 145 |
fomc | 1,994 | President Jordan. | 3 |
fomc | 1,994 | I can support 75 and symmetry at this meeting. Regarding outside expectations of what we are going to be doing, though, it looks to me like we are in a trap. Former Governor Angell was in Cleveland a couple of weeks ago giving a speech, and he said we will be at 7.75 percent on the funds rate a year from now. We have t... | 168 |
fomc | 1,994 | As I interpret them, I think the comments around this table support that. Governor Kelley. | 18 |
fomc | 1,994 | Mr. Chairman, I have had in mind an intermediate target, if not a final target, of about 100 basis points. The question was when and how to get there. I have been holding out hope that perhaps we would not have to go too much further than that. My preference would have been to do this in stately 50 basis point steps. I... | 123 |
fomc | 1,994 | Governor Yellen. | 4 |
fomc | 1,994 | As I mentioned, it seems clear to me that some tightening of policy is needed to prevent inflation from accelerating, but I have strong doubts about the need for an additional 150 basis points. My guess is that it will take 75 to get the job done, and I can live with 75 basis points today. But on balance, I guess I wou... | 222 |
fomc | 1,994 | President Stern. | 3 |
fomc | 1,994 | I also support your recommendation for 75 basis points on tactical grounds because it seems to me that the markets have been discomfited by our failure to respond recently. I don't think that that has done our credibility any good. I would reiterate, though, a couple of the dangers that other people have mentioned. At ... | 165 |
fomc | 1,994 | President Moskow. | 4 |
fomc | 1,994 | Mr. Chairman, I support the recommendation. Quite frankly, I came into the meeting thinking that a series of 50 basis point increases would be preferable for the reasons that Mike Kelley enunciated. I also felt that, coming from a business background, it is preferable for people in business to see us moving in a progre... | 172 |
fomc | 1,994 | Governor Blinder. | 4 |
fomc | 1,994 | I think all of us have experienced the following: You go into a hotel room and the room is too cold. You turn the thermostat up a notch. You go in the shower. When you come out, it is still a little too cold. You turn the thermostat up another notch. You then go to sleep, but wake up at 2:30 in the morning in a sweat i... | 640 |
fomc | 1,994 | Elegant. | 2 |
fomc | 1,994 | Elegant, that is, moving with thought and planning in increments of, say, 50 as necessary and as a central bank that is not behind the curve, that is not panicked by an inflation which is likely to tick up 1/4 point or 1/2 point or something like that, but as a central bank that is willing to prescribe moderately stron... | 274 |
fomc | 1,994 | More than 50 basis points in the funds rate? | 11 |
fomc | 1,994 | No, the discount rate. There was a 100 basis point change in the discount rate. | 19 |
fomc | 1,994 | I am sorry, that's right. | 7 |
fomc | 1,994 | A 75 basis point increase now will add up to 175 basis points within a 6-month period, if you go back and add the other 50s. Since 1984, tightening has proceeded that quickly only once--in the period that I mentioned earlier between March 1988 and February 1989. There are several 6-month periods you can find within tha... | 419 |
fomc | 1,994 | Okay, I propose that we move 75 with symmetric language. | 13 |
fomc | 1,994 | We may need a need a new word to describe 75 basis points in the opening sentence of the operational paragraph. | 23 |
fomc | 1,994 | "A lot"! [Laughter] | 7 |
fomc | 1,994 | "Substantially"? | 5 |
fomc | 1,994 | I think it could be "increase significantly." The announcement will make it very clear what the Committee has in mind. | 23 |
fomc | 1,994 | Yes, "increase significantly" instead of "increase somewhat," which seems clearly inappropriate. | 17 |
fomc | 1,994 | Just say "increase?" | 5 |
fomc | 1,994 | "Significantly." | 5 |
fomc | 1,994 | The proposed directive language is as follows: "In the implementation of policy for the immediate future, the Committee seeks to increase significantly the existing degree of pressure on reserve positions, taking account of a possible increase in the discount rate. In the context of the Committee's long-run objectives ... | 116 |
fomc | 1,994 | Call the roll. | 4 |
fomc | 1,994 | Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder 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 Governor Yellen Yes | 48 |
fomc | 1,994 | I'd like to adjourn this meeting for just 5 minutes so the Board of Governors can go next door and take up the discount rate question. Then we can come back and Peter will have the floor to answer questions after I make some brief comments. [Recess] Secretary's note: The Bank presidents were informed that the Board mem... | 102 |
fomc | 1,994 | I want to raise a couple of issues following up on what Peter Fisher said earlier and just open up the discussion to general comments. First of all, I understand that there were some questions about statements coming out of Madrid to the effect that the central banks would be playing an enhanced role in the G-7 process... | 1,422 |
fomc | 1,994 | I have a question. | 5 |
fomc | 1,994 | Why didn't you ask him before! | 7 |
fomc | 1,994 | Was the second-day success the result of the sheer brilliance of the operation? Just say yes. [Laughter] | 23 |
fomc | 1,994 | This is kind of the reverse of a beating-your-wife question! | 13 |
fomc | 1,994 | Just say "yes;" that's enough! | 8 |
fomc | 1,994 | Yes! I'll mention one thing, Mr. Chairman, that relates to the commentary earlier by Governor Lindsey. Maybe this will inspire questions from those who are reluctant to dig in. I recognize in your comment the idea that intervention takes place and it seems to box in the Committee; the bridge had better go somewhere. I ... | 355 |
fomc | 1,994 | There are two counter-factuals: One would be not intervening and having something happen at this meeting; the other would be intervening coupled with a monetary policy change at the time. That's one you did not mention; that's in fact the one I recommended. Had we done that, I think we would have been in a much better ... | 104 |
fomc | 1,994 | As I have done in the past, let me argue against the use of monetary policy to achieve exchange market objectives. I am not necessarily referring to this particular instance, but this is something I think we have to be aware of. Often when we have a weak currency, we are looking at significant portfolio adjustments. Of... | 355 |
fomc | 1,994 | There is no question that we have no way of making that judgment; that's what markets are for. That's why I think it is inappropriate for us to take on the job of guessing at some point that the market is oversold and now is the time to plunge in. The Sword of Damocles would hang. I agree that markets are not always ra... | 273 |
fomc | 1,994 | Let me just say that I don't deny that there should be a relationship. It is just that if it is tying monetary policy directly to the exchange rate, it locks us in. To have it in parallel paths or somehow related, I think the answer is obviously yes. | 54 |
fomc | 1,994 | Let's not admit it to the world. But when the phone rings in your office, if you have behind you the view of this Committee that a monetary policy change will ultimately accompany an intervention, you will have a weapon supporting you in the view that I think you really hold, and that is that intervention should be use... | 68 |
fomc | 1,994 | We don't have to exercise it. | 7 |
fomc | 1,994 | We don't, but I think we should have that as the Chairman's weapon. | 16 |
fomc | 1,994 | Other comments, questions? | 5 |
fomc | 1,994 | Are we saying that dollar/yen is an interest rate phenomenon? | 13 |
fomc | 1,994 | Differential rates of return. In other words, if most of the exchange rate moves these days against the dollar are the result of portfolio shifts rather than, say, current account deficits or flows, then the question is why do people change portfolios? And the answer is that the risk-adjusted rate of return is perceive... | 72 |
fomc | 1,994 | There may be times when what you want to do for monetary policy purposes is consistent with what the Treasury wants to do to affect the exchange rate. I have difficulty relating that to what Governor Lindsey said. It sounds like he wanted a tool for all time for you to put in the closet, and I don't understand that. Th... | 101 |
fomc | 1,994 | In point of fact, we had a view; we stated it in our asymmetric directive. It was quite clear what this Committee wanted to do. It was quite clear that that was consistent with an appropriate action if an intervention occurred. And I will stipulate that the Committee's view may vary from time to time. | 63 |
fomc | 1,994 | Right. | 2 |
fomc | 1,994 | My precise recommendation at the last meeting was that because foreign exchange markets were likely to be unstable, that we go asymmetric and have a 50 basis point move as our explicit price for intervention. I think that was quite appropriate. I think that that would be the right kind of message for us to send in the ... | 84 |
fomc | 1,994 | So the trip factor would be a request for intervention. When we have asymmetry, what we are assuming is that we or the Chairman will be looking at a set of data that will lead him perhaps to request a rate increase. Are you saying that there is one development we are going to focus on and that is a request from the Tre... | 71 |
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