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fomc | 1,995 | A credit variable or borrowing? | 6 |
fomc | 1,995 | Either. I use the word credit in a generic sense so that it could be money, it could be borrowing, it could be a credit variable, it could be a non-interest-rate variable. Do you envisage that sort of target as even remotely realistic or are you going to forecast that we will be saddled--I use the word advisedly--with ... | 97 |
fomc | 1,995 | There are really two issues, Mr. Chairman, and I would like to subdivide my response accordingly. One is the issue of what Peter Fisher is looking at every day when he is adding or subtracting reserves. We used to have a borrowing objective that was really a proxy for what was going on in the money markets. It had a li... | 563 |
fomc | 1,995 | And certainly not abandon the funds rate target-- | 9 |
fomc | 1,995 | No, you couldn't really. There is no way of targeting those broad money or credit variables directly. It would all be through interest rates and nominal income. | 31 |
fomc | 1,995 | Well, we used to. | 6 |
fomc | 1,995 | The only thing we ever targeted directly, more or less, was M1. We did move reserves around to achieve M1 targets from 1979 to 1982. | 35 |
fomc | 1,995 | When I first arrived on the scene in mid-1987, there were still remnants of different types of borrowing targets. | 24 |
fomc | 1,995 | Yes, but the borrowing targets were really proxies for what was going on in reserve markets. They were not being changed in direct response to, say, M1 or M2. I think M2 played a role in changing the borrowing target, as indeed we could see in the 1989 episode, but there wasn't a direct tie between the borrowing and M2... | 74 |
fomc | 1,995 | Other questions for Don? | 5 |
fomc | 1,995 | Don, in your discussion of symmetry and asymmetry, you indicated that if the Committee were to favor asymmetry to the up side, it might be as a result of its concern about the path that inflation is expected to take over the longer term. In your discussion of symmetry, you talked about the Committee maybe concluding th... | 108 |
fomc | 1,995 | Obviously, it would depend on the Committee's outlook for inflation. If the Committee were concerned that inflation was more likely to rise than to fall and it wanted to resist that rise, the asymmetry would tend to convey that. If the Committee felt the risks on inflation were evenly balanced around the 3-1/4 percent ... | 99 |
fomc | 1,995 | Thank you. | 3 |
fomc | 1,995 | President Stern. | 3 |
fomc | 1,995 | Don, in your discussion about inertia and what might or might not work, you did not mention the monetary base. Is that principally because of the currency component, especially the currency held abroad, or do you have something else in mind? | 47 |
fomc | 1,995 | No. I think first of all that the growth of foreign holdings of our currency has distorted growth of the base substantially. We have only the roughest notion of what proportion of our currency is held overseas and how it changes month to month. We have a lot of work going on here at the Board trying to estimate that, a... | 326 |
fomc | 1,995 | Good. | 2 |
fomc | 1,995 | Vice Chairman. | 3 |
fomc | 1,995 | Don, am I right in thinking that one of the messages from your very interesting presentation is that we may have reached a point at which quarter point changes in the funds rates would be appropriate again? When we were going through the tightening exercise, we went 25, 25, 25, then a couple of 50s, then 75, then 50. I... | 107 |
fomc | 1,995 | I think they would be more appropriate now, particularly if in order to make 50 basis point moves, the Committee felt it had to wait for more information. I thought the lesson of my sermon was that it is better to be a little flexible, and maybe even have to reverse after going in one direction or another, than to get ... | 103 |
fomc | 1,995 | Any further questions? | 4 |
fomc | 1,995 | Don, do you also think that 25 basis point changes could be implemented, as they were in the beginning, decoupled from the discount rate? | 31 |
fomc | 1,995 | Sure, but they would be announced. | 8 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | In fact, I saw a comment recently that suggested it might be wise, if the Fed is going to tighten, to do it with the funds rate rather than the discount rate. | 36 |
fomc | 1,995 | Right. | 2 |
fomc | 1,995 | I think it was in one of the incoming Reserve Bank letters on the discount rate. That would allow the spread to widen and make it easier to reverse, because if the Committee started to reverse in tentative steps, the discount rate would not have to be cut. Now that both discount rate changes and funds rate changes are ... | 124 |
fomc | 1,995 | I have a lot of sympathy with what you are saying, Don, about the need to move the funds rate more flexibly. It gives me an opportunity to underline a point I have made before. If we just had some kind of clear long-term anchor, it would be a lot easier to do that. Certainly, one of the reasons we are reluctant to do t... | 141 |
fomc | 1,995 | Further questions from anybody? If not, let me get started. It is pretty obvious that the growth of the economy is moving down in the direction that we had hoped. Indeed, if the evidence did not show that, as I indicated at our last meeting, I think we would be facing severe difficulties at this stage with serious inst... | 1,367 |
fomc | 1,995 | Thank you, Mr. Chairman. I find myself in the awkward position of advocating asymmetry as a signaling device, having spoken against the use of asymmetry for that purpose a number of times in the past. But at this particular time--although there is no question in my mind that "B" is correct, i.e., that we should not cha... | 228 |
fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. I thought Don Kohn's remarks were very useful concerning the problems we are going to be facing in making policy decisions. I also found very useful your remark right now on the interplay with the marketplace and the need to change the rhetoric. I don't know how it can be changed in a positive ... | 784 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Alan, in evaluating the current policy stance, as I think you all know, I tend to look at reserve measures and monetary aggregates. I think the current policy stance has a chance of capping the recent rise in inflation, albeit probably at a somewhat higher level than we are seeing right now. The decline in long-term bo... | 568 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | Unlike, I think, many of the other people who have spoken already, I did not come to this meeting with a predisposition in favor of staying pat. Rather, most of the work we have done, and most of the people I have talked to, suggested that further interest rate increases were necessary to keep inflation in check and de... | 391 |
fomc | 1,995 | President Stern. | 3 |
fomc | 1,995 | I think Don Kohn raised a couple of interesting points, and I would like to start with comments on those. I do think this problem of interest rate inertia is a real problem, potentially at least. It may be that what we are seeing in the financial markets now is a consequence of unsustainable euphoria for one reason or ... | 414 |
fomc | 1,995 | President Parry. | 4 |
fomc | 1,995 | Mr. Chairman, because I find the path for inflation in the baseline forecast unacceptable, my first preference would be for a small increase in rates. However, I could support alternative B because of the significant uncertainties that we see in the very short-term prospects for the economy. I also would strongly favor... | 85 |
fomc | 1,995 | President Forrestal. | 4 |
fomc | 1,995 | Mr. Chairman, as I look at the situation, I think that the economy is in relatively good shape. Some might take the position that the dollar would argue against that, but generally speaking the economy looks good to me. We are getting some of the deceleration that we had anticipated from our earlier policy moves. I thi... | 261 |
fomc | 1,995 | President Hoenig. | 4 |
fomc | 1,995 | Mr. Chairman, given the data coming in, I can wait as you are suggesting. But as I said earlier, I am concerned about the upside risks especially for inflation, and I am concerned about the inertia Don was talking about that can take place. With that, I would very strongly support asymmetry toward tightening and would ... | 74 |
fomc | 1,995 | President Moskow. | 4 |
fomc | 1,995 | Mr. Chairman, I favor no change in the federal funds rate today. However, I do think that the risks are more on the up side than balanced at this point. In fact, our forecast for inflation for 1995 is closer to 3-1/2 percent than to the 3.2 percent in the Greenbook. It is appropriate to wait for more information on the... | 213 |
fomc | 1,995 | President Boehne. | 5 |
fomc | 1,995 | I support alternative B because this is a wait-and-see time, and I support an asymmetric directive for the reasons that were well articulated by Bill McDonough. | 32 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | Mr. Chairman, in considering an asymmetric directive, I am reminded of the spring of 1993. I have been here so long that I am starting to look backward! In the spring of 1993, the fear of a bubble was mentioned at this table. We actually had a pretty good bubble develop in the bond market, and we paid a fairly signific... | 292 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | Mr. Chairman, I think your strong recommendation for alternative B, the fact that it is a crystal clear decision at this meeting, and the reasoning leading to that conclusion are all correct. I am happy to endorse them. On the asymmetry/symmetry issue, I am certain that I am not certain [Laughter] for the following rea... | 496 |
fomc | 1,995 | I look at it as a question of probabilities. In other words, the question really amounts to: What is the probability in this long period that we will be moving rates up or moving them down? I would say that we are more likely to move them up, finding, for example, that the slowdowns we are seeing are partially false or... | 194 |
fomc | 1,995 | If I can clarify that: You are suggesting that there are three probabilities. The middle probability is doing nothing. If the up probability exceeds the down probability-- | 31 |
fomc | 1,995 | By a sufficient amount. | 5 |
fomc | 1,995 | Okay, I have it. Thank you. | 9 |
fomc | 1,995 | And each of us has to determine what constitutes a sufficient amount. | 13 |
fomc | 1,995 | Okay, thank you. | 5 |
fomc | 1,995 | Governor Kelley. | 3 |
fomc | 1,995 | Mr. Chairman, I certainly think there is every reason to "wait and see" today. I strongly support "B." I did speak earlier about my feeling that as of now the risks could be seen as skewed to the up side. My understanding of the use of an asymmetric or symmetric directive is exactly the same as you just articulated, Mr... | 173 |
fomc | 1,995 | President Broaddus. | 5 |
fomc | 1,995 | Let me first if I may, Mr. Chairman, associate myself with Gary Stern's comments about the monetary base. I think there is a lot to be gained by some additional research looking at the possibility of using the base or perhaps something similar to it in our operating procedures. As far as policy is concerned, I can cert... | 283 |
fomc | 1,995 | President McTeer. | 5 |
fomc | 1,995 | I agree with your recommendation for no change in the federal funds rate. I agree with your recommendation for an asymmetric directive, although I normally prefer symmetry, not only to signal our leaning in regard to inflation fighting but also in regard to the dollar. | 49 |
fomc | 1,995 | Governor Phillips. | 3 |
fomc | 1,995 | Given the evidence on the slowdown, I agree that "B" is an appropriate directive--no change. I do think that it is possible that additional tightening is going to be needed if we are going to resume progress on reducing inflation. I have a slight preference for asymmetry toward tightening because I do think that there ... | 76 |
fomc | 1,995 | Governor Yellen. | 4 |
fomc | 1,995 | I agree with your proposal for alternative B for no change today. Although I could live with asymmetric, I would prefer symmetric for the reasons that have been explained by President Forrestal and Governor Blinder. At the moment, it seems to me that the economy, with some reasonable probability, is on track for a soft... | 255 |
fomc | 1,995 | I think as I read the view of this Committee, we would be at alternative B and mildly asymmetric. Would you read the directive? | 27 |
fomc | 1,995 | The directive would read, and this is on page 14 of the Bluebook: "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, an... | 114 |
fomc | 1,995 | Call the roll. | 4 |
fomc | 1,995 | Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Hoenig Yes Governor Kelley Yes Governor Lindsey Yes President Melzer Yes President Minehan Yes President Moskow Yes Governor Phillips Yes Governor Yellen Yes | 44 |
fomc | 1,995 | Before we adjourn, Ted Truman has a very minor change to recommend in the minutes for our previous meeting. Ted, did you want to read it or shall I read it from here? | 38 |
fomc | 1,995 | I apologize because I thought I had read the minutes earlier, but I had not. Out thinking at the time of the last meeting was that the Japanese earthquake would affect our imports but not our exports. The truth of the matter at this point is that we think the earthquake will affect neither. But that was where we were, ... | 110 |
fomc | 1,995 | Without objection. [Laughter] May 23 is our next meeting and we adjourn for lunch. | 23 |
fomc | 1,995 | Would somebody like to move the approval of the minutes for the March 28 meeting? | 17 |
fomc | 1,995 | So move. | 3 |
fomc | 1,995 | Without objection. We now turn to Peter Fisher who will report on the operations of both the foreign Desk and the domestic Desk. | 25 |
fomc | 1,995 | Thank you, Mr. Chairman. I will first discuss current conditions in interest rate markets and then some of the factors contributing to recent exchange rate movements before reviewing foreign and then domestic operations. [Statement--see Appendix.] | 43 |
fomc | 1,995 | Questions for Peter? | 4 |
fomc | 1,995 | In the domestic report, you indicated that a group of traders was "priced out of the market." What does "priced out of the market" mean, and how do you know they were priced out? | 41 |
fomc | 1,995 | If you are taking a short position on the expectation that the data will lean the other way or the market will not continue to rally, you begin to lose a lot of money and you have to cover your shorts. There are people who believe that there will be a rebound in activity by the end of the year, but it is too expensive ... | 80 |
fomc | 1,995 | Do you take a survey or-- | 7 |
fomc | 1,995 | We talk to people, and there are some well known losses that are now reported. We certainly talk to the dealers about major positions that go against them. So, yes, there are informal surveys and some more formal surveys. | 45 |
fomc | 1,995 | I think the Governor is asking the question, "What in the world does it mean to say you are priced out of the market?" | 27 |
fomc | 1,995 | That's right. [Laughter] | 7 |
fomc | 1,995 | You lose a lot of money! [Laughter] | 11 |
fomc | 1,995 | I think, as Don said, you lose a lot of money. There were people who were priced out of the market in December. They thought that the fed funds rate might not be raised 200 basis points in 1995 and that the yield curve had moved well beyond where it would go. But they chose not to express that view in the market in Dec... | 74 |
fomc | 1,995 | Governor, what he is saying is a euphemism for indicating that they were wrong and that the price they are looking at now is too high to buy. | 32 |
fomc | 1,995 | Thank you. | 3 |
fomc | 1,995 | Did I get it right, Peter? | 8 |
fomc | 1,995 | Sure. [Laughter] | 6 |
fomc | 1,995 | Any other questions? President Forrestal. | 8 |
fomc | 1,995 | Peter, what effect, if any, would you expect the threatened trade sanctions with Japan to have on the foreign exchange markets? | 25 |
fomc | 1,995 | There were various stages in their announcement process. One of the earlier, more definitive, announcements actually had a positive effect on dollar/yen--modestly positive. I think I have described my views to the Committee before on this. When the markets perceive trade policy statements to be just saber rattling and ... | 148 |
fomc | 1,995 | Further questions for Peter? | 5 |
fomc | 1,995 | Peter, you talked about a coupon purchase operation in the last maintenance period and about the possibility of two such operations in the intermeeting period coming up. This raises a question I have wondered about for a long time, which is how you decide what to buy. There is a whole variety of securities out there. I... | 161 |
fomc | 1,995 | No, I don't, and I would like to look into and clarify some of the criteria that we use to approach this task. The presumption for several years has been that we are really replicating the portfolio as it exists. So, there is simply an effort to maintain roughly the current maturity mix. That is the policy that I inher... | 221 |
fomc | 1,995 | Governor Kelley. | 3 |
fomc | 1,995 | As a follow up, would that review also include the absolute size of passes and their impact on the composition of the permanent portfolio? | 26 |
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