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fomc | 1,994 | There may be other reasons to adjust monetary policy, but it should be clear that there is a price associated with intervention. There is a monetary policy change that accompanies our intervention. | 35 |
fomc | 1,994 | I wonder if I could put another alternative on the table--that we not intervene at all. I realize that there are many people on the Committee who would disagree with that because they think that, at least in a limited way, intervention may be useful from time to time, and I certainly respect those views. But I have to ... | 496 |
fomc | 1,994 | You are raising an interesting question. The dilemma we have is that if we withdraw and act strictly as an agent, we then lose any voice in altering or casting the structure of the policy that they would like to implement. The points you are making, Al, are quite to the point; I don't disagree with that. The question t... | 318 |
fomc | 1,994 | Well, again, I just worry about the credibility effect. I think there is a negative there and I guess I see the tradeoff differently. Obviously, I have no personal experience in this and I respect your views. But is it the case that we would have no influence whatever in these discussions if we were not participating d... | 66 |
fomc | 1,994 | Yes, ultimately, I would say, if we decided to bow out. In other words, you can't be half in or out. Either we are acting as an order taker, which is strictly as the agent of the Treasury, or we get involved in the discussion. We either have to cut our participation completely and have Peter act as an order taker with ... | 98 |
fomc | 1,994 | If the System is not participating in these operations, that's going to have some effect in itself on the way the Treasury views the operations-- | 27 |
fomc | 1,994 | I think that is the point, President Broaddus. Ultimately, we can and have declined to participate. There have been occasions--I am referring to a long period of time--when we have declined to participate. The suggestion that we are not going to participate can be a significant brake on the enthusiasm of the Treasury--... | 176 |
fomc | 1,994 | Al, I would argue that we can't withdraw from it completely because part of our statutory responsibility is the stability of the financial system. I can envision a situation where the foreign currency markets were so disorderly that they were a threat to the financial stability of the country. I think that to take us c... | 165 |
fomc | 1,994 | That's practically what we try to do. | 8 |
fomc | 1,994 | Yes. | 2 |
fomc | 1,994 | I guess I think if we are out of these operations, there is less chance of disorderly markets. [Laughter] | 25 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | I think we have to talk as a practical matter about how we would go about this disengagement. At the present time, the Federal Reserve Bank of New York operates as the agent for the U.S. monetary authorities, which means the Federal Reserve and the Treasury. The way the conversations take place is that the Desk, Peter ... | 550 |
fomc | 1,994 | We haven't used the swap lines. Indeed, all the intervention that has taken place has been profit-taking, because we have been selling off our deutschemark and yen reserves. President Jordan. | 37 |
fomc | 1,994 | Mr. Chairman, this to me is an exceedingly difficult issue and not one that this central bank or any central bank in today's world can solve by itself, whether by any unilateral declaration by us or even all the central banks. Both your initial remarks and your response to Al's comment, I think, highlight what the prob... | 562 |
fomc | 1,994 | Governor Kelley. | 3 |
fomc | 1,994 | Mr. Chairman, I think that if we were to withdraw in that way, it would create a wound that could very easily be opened at almost any time. It would indicate a continuing disarray in U.S. financial management to any serious observer, official or private. I think it could have very deleterious consequences in an ongoing... | 213 |
fomc | 1,994 | I am very sympathetic to that point of view. I don't think that in practice we could withdraw. On the other hand, I also know that we have a Treasury that likes to intervene more than we would like it to intervene. What I would like to do is give you, Mr. Chairman, an extra weapon to say "no." The only extra weapon tha... | 131 |
fomc | 1,994 | President Stern. | 3 |
fomc | 1,994 | I used to comfort myself with the observation that since sterilized intervention really didn't affect anything, it probably really wouldn't harm anything either, a sort of a no-harm-no-foul kind of rule. But I have come to the conclusion that sterilized intervention does have some cost. Al just cited the credibility is... | 235 |
fomc | 1,994 | I want to call on Ted because Ted has been around here in this area longer than all of us put together. I am curious as to how he would respond to this. | 35 |
fomc | 1,994 | On the communications question? | 5 |
fomc | 1,994 | No, on this general broad issue--the principles, which you infer, that various Treasuries have employed over the years. | 26 |
fomc | 1,994 | I think President Jordan is absolutely right. In a sense, we are suffering from the fact that various Treasuries have had a sequence of ad hoc or at least temporary policies for our currency. I think that relates both to the international value and the domestic value. Those two things are bound up and are inherent in t... | 870 |
fomc | 1,994 | I have a reservation about Larry's suggestion about the linkage of a visible domestic policy action tied with intervention promoted by the Treasury. That's because of the asymmetry that would be involved if we were to get into a world where confidence shifts around and capital flows were starting to put some very subst... | 108 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | Mr. Chairman, I am sure it is no secret to the Committee that this kind of a debate They know very well that there is not wild-eyed enthusiasm for intervention on this Committee. In fact, that they know that is a very helpful tool for us. We don't need that you are describing; it is already there. | 65 |
fomc | 1,994 | Can I just make one very quick final comment, and I appreciate you letting me make my other comments earlier, Mr. Chairman. Let me just say that I am not a Fortress America guy. I don't want to be arrogant, but for me one of the highest priorities we have is always to protect our independence in the conduct of monetary... | 124 |
fomc | 1,994 | I have certainly heard all the arguments here and I must say that I have great sympathy. My own view is that I wish Treasury wouldn't do it and I wish we wouldn't do it. I think that would solve a lot of problems because I am not convinced that that's the way to stabilize our nation's currency. I don't deny that there ... | 257 |
fomc | 1,994 | Maybe I'll just add one footnote to the history before I pick up on your comment. After 1971, of course, we did not intervene for quite an extended period of time--March 1971 to July 1973. It was Arthur Burns and President Hayes who essentially prevailed upon the Treasury to take that small instrument out of the closet... | 531 |
fomc | 1,994 | Yes, let me raise one additional issue here. You may recall that in an earlier discussion, you were looking for ways to restrict the size of our operations. You wanted to try to disgorge some of our foreign exchange reserves. When we intervene in support of the dollar, we are moving in that direction. We are squeezing ... | 150 |
fomc | 1,994 | And at a profit. | 5 |
fomc | 1,994 | Yes, at a profit. Governor Lindsey. | 9 |
fomc | 1,994 | It sounds to me that you are saying that we are acting in order to restrain our ability to act, and I am not sure that that makes a lot of sense. Ted referred to opportunities to discuss proposed operations in conference calls. Now, one of the great beauties of the U.S. Constitution, which makes our foreign policy adve... | 154 |
fomc | 1,994 | This is obviously a matter for the Committee to decide. The historical antecedents of the procedural instructions were in fact to provide greater restraint on our interventions than had existed. For example, on the domestic side there is a limit on the intermeeting change in the System's overall holdings of U. S. gover... | 308 |
fomc | 1,994 | Alan, just getting back to what you said earlier, my worst fear about what I just heard was that it may work the first time [Laughter] and give some people confidence that that can be a substitute for getting the fundamentals right. I'd just pick up on something you said earlier. Maybe the secret is to keep some variet... | 139 |
fomc | 1,994 | I think that's absolutely right. Peter Fisher. | 9 |
fomc | 1,994 | I just wanted to add a footnote to your comment, Mr. Chairman, about taking the profits on the long position. One of the things that people in the market do focus on is that the accumulation of reserves since the late 1980s implies asymmetry in the U.S. appetite for intervention. That is, we are more prepared to hold d... | 137 |
fomc | 1,994 | Any further questions, comments? Yes, Tom. | 10 |
fomc | 1,994 | I don't have a question. In terms of this conversation and where it has drifted, I am not quite sure what we are deciding here, but-- | 31 |
fomc | 1,994 | Yes. | 2 |
fomc | 1,994 | What I understand, Mr. Chairman, is that we have been operating in a very restricted way in the sense that if there is a disorderly market or some other fundamental development, you and others come together knowing that this Committee is generally reluctant to intervene. But it depends on circumstances and the proposed... | 117 |
fomc | 1,994 | No, I think that's right. I agree with that. My own personal belief, I think, is probably fairly representative of this Committee. If anything, I might be more, if I may put it this way, on the hawkish side in this question. But I recognize that we have very important responsibilities. I think it is crucially important... | 98 |
fomc | 1,994 | Let me come back to where you started the discussion with one question that has been kicking around for weeks--whether we should do something not routinely larger but nonroutinely larger in the interest of varying the tactics. I see some heads going this way around the table but, of course, that's one risk. I think the... | 159 |
fomc | 1,994 | Let me put it this way. If it is done, it would be a one-shot thing because if we ever try to do it a second time, it would fail. That is what would happen. | 41 |
fomc | 1,994 | Nothing is more sure than that. | 7 |
fomc | 1,994 | It would be in the face of disorderly markets, right, Ted? | 15 |
fomc | 1,994 | I think I have been around too long to be able to give you a precise definition of what is a disorderly market. | 25 |
fomc | 1,994 | I know you can't, but we wouldn't just do it to prove we could do it. | 18 |
fomc | 1,994 | Let me try to do what I just said I can't do. Disorder to some extent is in the eyes of the beholder. Sometimes we have a situation where the dollar is weaker than the fundamentals would justify. Sometimes the weakness has to do with market conditions. Both situations have been used. Although I know there are preferenc... | 78 |
fomc | 1,994 | I think there is a distinction to be drawn. I thought the November 2nd and 3rd interventions were helpful because of the perception of disorderliness in terms of the Administration's back-and-forth approach to the dollar. I think it was helpful in terms of the country's credibility that we did intervene and that the in... | 68 |
fomc | 1,994 | Certainly, it was successful! [Laughter] | 10 |
fomc | 1,994 | That's true. The reason may be, as you said, that it came at a surprise moment and that contributed to the success. I would worry if in the absence of a surprise--well, I don't know how one can know this except after the fact. | 52 |
fomc | 1,994 | Not to put words in your mouth, we could be capricious or appear to be capricious about why we are operating. We ought to have some sense of what we are trying to accomplish and why we were trying to do it even though it is not always very well articulated. | 58 |
fomc | 1,994 | We will all starve if we don't stop this discussion! | 12 |
fomc | 1,994 | We need two votes. | 5 |
fomc | 1,994 | Whatever you have to say, say it in half the time. I think President Jordan has the floor. | 21 |
fomc | 1,994 | On this issue of how the intervention is perceived, the Federal Reserve does not issue statements at the time foreign currency actions are undertaken. My feeling about intervention would be significantly influenced by what is said, and I hope that your contribution is significant not only in terms of what is done, when... | 173 |
fomc | 1,994 | Peter, you have a comment? | 7 |
fomc | 1,994 | It was really my two votes that I was after, Mr. Chairman. | 15 |
fomc | 1,994 | We need a vote right now on the issue of ratifying the actions of the Desk. Let me emphasize that the issue of ratification is strictly the question of whether the Manager had the legal authority to undertake the transactions. We are not discussing the philosophy here. I would like to raise that question and would some... | 66 |
fomc | 1,994 | Move approval. | 3 |
fomc | 1,994 | Second. | 2 |
fomc | 1,994 | Are there any objections? If not, consider it passed. Now we have another question on the swaps, which is a one-year extension. Just repeat quickly what the issue is. | 36 |
fomc | 1,994 | Reread your recommendations. | 6 |
fomc | 1,994 | We have most of our reciprocal currency swap agreements up for renewal; those with Mexico and Canada come up at a different time now. | 26 |
fomc | 1,994 | They will come up a year from now. | 9 |
fomc | 1,994 | Yes, a year from now. | 7 |
fomc | 1,994 | I suggest that we take a formal vote on that. | 11 |
fomc | 1,994 | What we have now is no change in the terms and conditions of the existing swaps with Austria, the United Kingdom, Japan, Norway, Sweden, Switzerland, the Bank for International Settlements, the Belgian National Bank, the Danish National Bank, the Bank of France, the Bundesbank, the Bank of Italy, and the Netherlands Ba... | 110 |
fomc | 1,994 | Second. | 2 |
fomc | 1,994 | Would you read the roll. MR. BERNARD: Chairman Greenspan Approve Vice Chairman McDonough Approve Governor Blinder Approve President Broaddus No President Forrestal Approve President Jordan Approve Governor Kelley Approve Governor LaWare Approve Governor Lindsey Approve President Parry Approve Governor Phillips Approve ... | 70 |
fomc | 1,994 | Would somebody like to move that we go to lunch? [Laughter] | 15 |
fomc | 1,994 | No objection. | 3 |
fomc | 1,994 | Would somebody like to move approval of the minutes for the meeting on November 15? | 17 |
fomc | 1,994 | So move. | 3 |
fomc | 1,994 | Without objection. I recognize President Jordan for a motion. | 11 |
fomc | 1,994 | Thank you, Mr. Chairman. I'd like to nominate Mark Sniderman to be an associate economist of the FOMC. | 25 |
fomc | 1,994 | Would somebody like to second the motion? | 8 |
fomc | 1,994 | Second. | 2 |
fomc | 1,994 | Unless I hear an objection, it's approved. Peter Fisher has a number of interesting things to discuss this morning. Peter. | 24 |
fomc | 1,994 | Thank you. [Statement--See Appendix.] | 9 |
fomc | 1,994 | Questions for Peter? If not, shall we go on to Joan Lovett? | 16 |
fomc | 1,994 | Thank you, Mr. Chairman. [Statement--See Appendix.] | 13 |
fomc | 1,994 | Questions for Joan? Governor Phillips. | 7 |
fomc | 1,994 | You mentioned that the markets were thinner at the year-end than they usually are. Would you expand on that? | 22 |
fomc | 1,994 | It has been a disappointing year for a lot of people in the financial markets. We have had some sense since Thanksgiving that many people are just hanging on in the hope of getting through December 31. If they have done well or have managed to do all right, they want to finish the year in that position. If they haven't... | 157 |
fomc | 1,994 | Is this causing more discounting of the Orange County paper than you might ordinarily expect if they had been selling that paper at another time of year? | 29 |
fomc | 1,994 | I think that in the Orange County case there probably are several influences at work. It was helpful that people eventually were able to get a handle on just what the county has. In the first day or so, people couldn't get any information from Orange County on almost anything, and I think that is what caused the bigges... | 194 |
fomc | 1,994 | Thank you. | 3 |
fomc | 1,994 | Would somebody like to move to ratify the domestic transactions of the Desk since the last meeting? | 19 |
fomc | 1,994 | So move. | 3 |
fomc | 1,994 | Without objection. Let's now move on to Messrs. Prell and Truman. | 16 |
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 | Mike, you talked about the inflation forecast and indicated that you made, in effect, an intercept adjustment in the forecast to carry forward the favorable experience that we seem to have had in 1994. Would you talk further about why we have had that favorable experience and why it might continue? We may be seeing act... | 122 |
fomc | 1,994 | That is a risk I hinted at in my remarks about the late 1980s experience. I think the key here is to look back at why we projected the inflation that we did for 1994. In essence, we were concerned at the beginning of the year that the pattern of expectations we were seeing, the very buoyant attitudes and so on, and the... | 272 |
fomc | 1,994 | President Jordan. | 3 |
fomc | 1,994 | Mike, there have been a couple of threads in the discussion about 1994: the Greenbooks in the past, this one, and your remarks now. On one side, we have had a lot more growth in output and employment this year than we--or anybody--had been anticipating and much larger increases in short-term interest rates than had bee... | 157 |
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