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fomc | 1,995 | I think that is a reasonable range. We might narrow it a bit but we would be pressing science pretty hard. | 23 |
fomc | 1,995 | Okay. | 2 |
fomc | 1,995 | President Parry. | 4 |
fomc | 1,995 | Mike, the estimated equilibrium real interest rate is mentioned in the Bluebook in the section where there is a discussion of the simulations of the FTS model. A very interesting result is that, if the greater fiscal restraint were put into effect, the equilibrium real interest rate would decline by 1-1/2 percentage po... | 118 |
fomc | 1,995 | Basically, we have an estimate of about 1-1/2 percentage points for what the elimination of the structural deficit would do. | 27 |
fomc | 1,995 | That is exogenous? | 5 |
fomc | 1,995 | No. | 2 |
fomc | 1,995 | It is a 1-1/2 percentage point decline in the equilibrium real rate that came out of the model simulations. I think to get a sense of the level you might look at the chart in the Bluebook that follows page 11. The end point there for the funds rate is 6-1/2 percent without fiscal contraction and 5 percent with the cont... | 135 |
fomc | 1,995 | This is obviously an "iffy" proposition and to some extent one might view this as schematic as opposed to very precise. | 24 |
fomc | 1,995 | I understand. | 3 |
fomc | 1,995 | It is our belief that real rates have been elevated by the structural deficits of the 1980s and elimination of the deficit would yield a lower real rate. One of the things we have to speculate about in this forecasting process is the anticipatory effects that might result. Estimating those effects is very difficult. On... | 87 |
fomc | 1,995 | Well, as I said, the fairly significant decline in the equilibrium real interest rate is a very interesting result. | 22 |
fomc | 1,995 | Mr. Chairman, I would like to come back for just a moment to try to provide a footnote to Mike's response to President Jordan. One thing to remember is that a year ago when we were dealing with the changeover in the Current Population Survey, we were expecting that revision to add in excess of 1/2 percentage point to t... | 121 |
fomc | 1,995 | President Hoenig. | 4 |
fomc | 1,995 | Just a clarification question to you, Peter. You talked a little about, and the Greenbook also referred to, some backing off in the growth of foreign demand for U.S. exports. But this morning you are still talking about continued robust growth. Am I understanding you correctly? Is there still some backoff in your proje... | 66 |
fomc | 1,995 | The decline in foreign demand is related to the Mexican situation. Excluding Mexico, we do not expect a significant change. | 24 |
fomc | 1,995 | You are not looking for a change in Europe or elsewhere? | 12 |
fomc | 1,995 | There is a little drop in Canada's rate of expansion because of their monetary policy tightening-- | 17 |
fomc | 1,995 | But otherwise the outlook is still pretty strong? | 9 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | If there are no further questions for the staff, obviously the rest of us have all the answers. Who would like to start? President Parry. | 30 |
fomc | 1,995 | Mr. Chairman, growth in the Twelfth District economy is gathering momentum. Employment growth has picked up and the unemployment rate has continued to fall, in large part due to improvement in California. Within the state, economic conditions have improved in both northern and southern California. Recovery in our Distr... | 463 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | New England continues to recover from the recession at a moderate pace, with substantial variation in employment growth from state to state. Long-term structural issues continue to plague the region with defense downsizing, uncertainties in health care, and re-engineering downsizing or rightsizing--whatever you want to... | 746 |
fomc | 1,995 | President Moskow. | 4 |
fomc | 1,995 | Mr. Chairman, on balance the Seventh District economy is still growing at a moderate to vigorous pace, although there has been some easing recently in a few interest-sensitive sectors. As I said to the Committee last time, two U.S. auto manufacturers reported cuts in orders from dealers as early as mid-December but no ... | 900 |
fomc | 1,995 | President Boehne. | 5 |
fomc | 1,995 | The Philadelphia region continues to expand, with some evidence that the pace of expansion is slowing. Wage and price increases generally remain subdued, but with labor markets tightening, there is some concern, more than I have heard before, about building inflationary pressures. Manufacturers report that industrial a... | 465 |
fomc | 1,995 | President Forrestal. | 4 |
fomc | 1,995 | Mr. Chairman, the Southeast economy continues to expand, although we have seen some deceleration during the fall and early winter. Employment growth in the District outpaced the nation last year but our unemployment rate fell relatively less because of in-migration to the area. We are expecting an unemployment rate of ... | 841 |
fomc | 1,995 | President Broaddus. | 5 |
fomc | 1,995 | The reports we have received lately indicate that overall conditions in our District are still generally robust. Like a lot of other people, we have seen some signs of deceleration in parts of the District and in some industries, but really nothing of size. There are just too few signs to reach any definitive conclu-si... | 857 |
fomc | 1,995 | President Stern. | 3 |
fomc | 1,995 | The Ninth District economy remains healthy. Unemployment rates are almost uniformly low throughout the District. Employment gains over the past year have been very substantial, and there are labor shortages in many parts of the District right now which over time certainly will slow the pace of expansion. Not unrelated ... | 584 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Thanks, Alan. The U.S. economy continues to grow more rapidly than forecasters had expected and likely more rapidly than can be sustained, with a four-quarter growth rate through the end of last year of about 4 percent. The unemployment rate fell 1.3 percentage points in 1994 to 5.4 percent in December. In the Eighth D... | 887 |
fomc | 1,995 | President Hoenig. | 4 |
fomc | 1,995 | Thank you, Mr. Chairman. The Tenth District economy remains strong, bolstered by healthy gains in its key industries across the states. Our directors from all parts of the District report a robust pace of business activity. A director from our utilities industry reports strong growth in electricity sales to important i... | 513 |
fomc | 1,995 | Vice Chairman. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. A pause has developed in New York City, which has slowed the economic expansion in the Second District despite sharp recorded drops in the December unemployment rate in both New York and New Jersey. The weakness, fortunately, is largely confined to the New York metropolitan area. In the remaini... | 835 |
fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | There is not much I could say about the Fourth District to add to what we put in the Beigebook or especially to what Mike Moskow said about what is going on in the Seventh District. In most respects, developments in our two Districts are very similar. We pay a lot of attention to manufacturing, both because it has been... | 565 |
fomc | 1,995 | President McTeer. | 5 |
fomc | 1,995 | The Eleventh District remains strong except for the border areas. The most optimistic word comes from Lubbock where we heard at our last board meeting that the biggest tightwad in west Texas had just bought a new pickup truck. [Laughter] Of course, the mood is just the opposite of that on the border in Brownsville, El ... | 397 |
fomc | 1,995 | Especially since they have recently gone up! | 8 |
fomc | 1,995 | The main other thought I want to convey is that I agree with Bob Forrestal in that I think the most crucial question for us now is what we should be watching to know when it is time to stop tightening monetary policy. How do we deal with the lag when policy is moving to restrain the growth of the economy? | 65 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. I want to join what sounds like virtually universal praise for the new approach in the Greenbook. I thought it was very, very helpful to have it stated this way. I also want to agree with what Bob Forrestal and Bob McTeer were saying about the tendency to go too far. There are some caution sign... | 1,056 |
fomc | 1,995 | Governor LaWare. | 4 |
fomc | 1,995 | Mr. Chairman, as a dedicated cynic when it comes to evaluating the good intentions of Congress, I am more than moderately skeptical about a balanced budget program. I have grave doubts about the wisdom of a balanced budget amendment. I do not expect the states to ratify the amendment even if it passes the Congress beca... | 279 |
fomc | 1,995 | We have a real blackout this time! Governor Kelley. | 11 |
fomc | 1,995 | Mr. Chairman, looking at the possible courses for the economy, one end of the spectrum would be that the expansion is slowing now, or it soon will be slowing, and that the slowdown will be adequate. A real doomsayer would say that the economy already is locked into an excessive downturn. At the other end of the spectru... | 528 |
fomc | 1,995 | Governor Phillips. | 3 |
fomc | 1,995 | Thank you. I think that the impressive national growth that we have been talking about around the table today is showing a few tentative signs of abating. I would cite spending that is off its highs. We talked about the inventory buildup in the fourth quarter and a flattened yield curve--inverted or humped at times. Bu... | 728 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | Thank you, Mr. Chairman. If you will pardon the metaphor, I would like to see your praise of the change in the Greenbook and raise it. I thought the change in the nature of this Greenbook raised its usefulness for thinking about policy from next to zero to a quite considerable level, which is more than a small incremen... | 1,919 |
fomc | 1,995 | You can still change it. | 6 |
fomc | 1,995 | I can? | 3 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | Okay, mark me down; thank you. I did not know that. I thought I was bound when I put it down. It actually got typed, so I thought that once it was typed, that was the end. | 45 |
fomc | 1,995 | When is the deadline? | 5 |
fomc | 1,995 | We were going to propose next Monday. | 8 |
fomc | 1,995 | Okay, mark me down. Thank you, Mr. Chairman. On inflation, if we have overshot the natural rate, as seems likely to me, we should get a slow upcreep in inflation, as in the Greenbook, and continuing out in further years, as in the Bluebook. The analysis in those two documents seemed pretty much on target to me. Apropos... | 185 |
fomc | 1,995 | Governor Yellen. | 4 |
fomc | 1,995 | Governor Kelley mentioned that it is possible to spin out two rather different scenarios concerning the economic forecast at this point, and I agree with him. In one scenario, no significant slowdown is in sight and the inflation outlook is pretty worrisome. In the second, we do have a slowdown in progress. We have alr... | 1,546 |
fomc | 1,995 | Thank you. Shall we break for coffee? Is coffee there? | 13 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | Anyone who wishes to revise his or her projections for the Humphrey-Hawkins report can contact Mike Prell through Monday. Close of business Monday, is that correct? | 34 |
fomc | 1,995 | Sure. | 2 |
fomc | 1,995 | Let's move to the longer-run ranges for the aggregates. I call on Don Kohn. | 18 |
fomc | 1,995 | Thank you, Mr. Chairman. First, I want to point out that the Secretariat is distributing or will distribute a memo sent to me from David Small that contains some of the information that Governor Yellen talked about this morning, including Taylor's rule. It is for your information and gives everybody access to what she ... | 173 |
fomc | 1,995 | Questions for Don? If not, let me just say what I think may be the consensus of the group that is implied in Don's recommendation. I think we successfully brought the ranges down to where they are finally consistent with price stability in the context of a restoration of the old relatively stable M2 velocities and some... | 219 |
fomc | 1,995 | We all care passionately! | 5 |
fomc | 1,995 | Is there a vote for "who cares"? | 9 |
fomc | 1,995 | Do we need an official vote? | 7 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | Why don't I just move Alternative I and ask the secretary to call the roll. | 16 |
fomc | 1,995 | Chairman Greenspan Yes Vice Chairman McDonough Yes President Hoenig Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes President Minehan Yes President Moskow Yes Governor Phillips Yes Governor Yellen Yes | 44 |
fomc | 1,995 | You skipped me, but I will vote "yes" anyway. I lost my vote! | 18 |
fomc | 1,995 | He took your "who cares" seriously! | 9 |
fomc | 1,995 | That's right. Maybe it is recorded. | 8 |
fomc | 1,995 | I may have been recorded as "who cares." | 10 |
fomc | 1,995 | Let's now move to the current monetary policy and the directive. I will again call on Don. | 19 |
fomc | 1,995 | I will be even briefer, Mr. Chairman. [Statement --see Appendix.] | 17 |
fomc | 1,995 | Questions for Don? Yes, Jerry. | 8 |
fomc | 1,995 | Don, one of the alternatives you gave us in the top panel of Chart 4 of the Bluebook assumes the NAIRU is 5-1/2 percent. If I understand this, the line labeled "Tighter" is not tighter compared to where we are. It seems to me to be based on maintaining the fed funds rate where it is. The bottom two panels tell me what ... | 93 |
fomc | 1,995 | I agree that that chart is not well labeled. The long-dash line is the tighter alternative from the two previous charts. The short-dash line answers the question: What would the funds rate have to be with a lower NAIRU to get the same inflation outcome as from the tighter alternative? It is not well labeled. | 66 |
fomc | 1,995 | Mike's response to me earlier was that if we knew the "true" NAIRU was 6 percent, that really means we can say with reasonable confidence that it is someplace between 5-1/2 and 6-1/2 percent. This tells me that if we knew it truly was 5-1/2 percent, then we are really saying it is someplace between 5 and 6 percent. | 86 |
fomc | 1,995 | A reasonable supposition. | 5 |
fomc | 1,995 | I do not have a clue where it is, but I am just trying to understand what these charts say. | 22 |
fomc | 1,995 | Further questions for Don? If not, I will start off as usual on the policy side. Coming out of the fourth quarter, if we had seen no signs of slowing or of kinks in the unbelievable set of one-sided data, I think we would be in serious trouble at this stage. Fortunately, there are now tentative signs, not necessarily p... | 2,047 |
fomc | 1,995 | Moving up toward two per day, yes! | 9 |
fomc | 1,995 | Thanks to Ricki! [Laughter] C&I loans are just extraordinary. Consumer loans extended by commercial banks, especially when securitization is added back in, are also remarkable. And apparently we are still getting some easing in credit terms, which seems to suggest that bankers have not been told about our monetary poli... | 983 |
fomc | 1,995 | Alan, I am in full agreement with what you recommend. The only thing I would add is that I would accompany that increase in the funds rate with an increase in the discount rate. | 37 |
fomc | 1,995 | I'm sorry, I thought I said that. | 9 |
fomc | 1,995 | I'm sorry, I missed it. My reasons are much the same; let me just quickly tick them off. First of all, in my view we must continue to restrain the growth in the monetary aggregates to ensure that incipient inflationary pressures are contained and that progress is made toward price stability. Secondly, though the growth... | 302 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | I also am in full agreement with your recommendation. I meet with people from a lot of the mutual fund and money management organizations prior to coming to Federal Open Market Committee meetings just to get a sense of where they think the markets are. This time they were very strongly tilted toward an expectation, as ... | 260 |
fomc | 1,995 | President Broaddus. | 5 |
fomc | 1,995 | I support your proposal fully, Mr. Chairman. | 10 |
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