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fomc | 1,995 | That is true of anyone's forecast! | 8 |
fomc | 1,995 | That was the next sentence out of my mouth! [Laughter] If it is not true of the Greenbook, it is an exception to the rule. There are a number of reasons for this tendency of forecasts to underestimate changes. I mentioned this last time, and I am not going to go into any detail here, but a lot of those reasons could be... | 551 |
fomc | 1,995 | With that, we will go to coffee. COFFEE BREAK | 13 |
fomc | 1,995 | [Statement--see Appendix.] | 6 |
fomc | 1,995 | Don, is the price index that Taylor uses the fixed weight or the implicit deflator? | 18 |
fomc | 1,995 | I think it is the implicit deflator. | 9 |
fomc | 1,995 | So, when the GDP figures are revised, his normative funds rate will go up? | 17 |
fomc | 1,995 | I would suppose so. | 5 |
fomc | 1,995 | You don't know what the dimension of that is, do you? | 13 |
fomc | 1,995 | If you use the implicit deflator in his rule, you come out with a federal funds rate around 4-1/4 percent now. If you use the CPI rather than the implicit deflator, you are around 5-3/4 percent. | 52 |
fomc | 1,995 | Yes, it is closer to 6. | 9 |
fomc | 1,995 | But using the CPI in the equation for earlier years does not track Committee actions as well as using the deflator. In particular, by persisting at a higher level through the 1991-1993 period, the CPI predicts a much higher federal funds rate than the Committee actually adopted. CHAIRMAN GREENSPAN. The crucial question... | 116 |
fomc | 1,995 | Just an elementary observation: It does not make a lot of sense to take the same equation with the same intercept and the same coefficients and then change the right hand variable to see how it does. If you had used a different inflation index over the eight years, you would have had a different rule. | 60 |
fomc | 1,995 | That is exactly right. | 5 |
fomc | 1,995 | Except that, Governor Blinder, this rule was not estimated. | 13 |
fomc | 1,995 | Right. | 2 |
fomc | 1,995 | He just did something that seemed to make sense and things fell out. But you are right, if you were to estimate it, obviously it would come out somewhat differently. | 34 |
fomc | 1,995 | For both problems. | 4 |
fomc | 1,995 | Any other questions? If not, I don't have much to add to what has been said in recent meetings because, in fact, the economy is moving pretty much as expected. If you make the adjustment that Governor Blinder requires, namely that forecasts are always a moving average of actual events and they smooth out the real world... | 117 |
fomc | 1,995 | It never tells you which quarter, though! [Laughter] | 13 |
fomc | 1,995 | No, it never is very helpful in that sense. I think we have to look at this particular outlook in terms of what is engendering the softening. That softening is very clearly the result of an inventory backup, which could be a little stronger than we may expect. I think manufacturing may have a few more months, maybe thr... | 1,140 |
fomc | 1,995 | 1.2 billion in the first quarter. | 9 |
fomc | 1,995 | Is that an official figure? Where did you get the number? | 13 |
fomc | 1,995 | The bankers gave it to me. | 7 |
fomc | 1,995 | No kidding! That is scary! | 7 |
fomc | 1,995 | It is scary! | 4 |
fomc | 1,995 | Every dog and cat and moose has a credit card! I think that part of the problem is merely a shift in the form of financing, but I don't think we can look at those figures without some concern. I do agree that the easing of credit terms is a potential problem down the road. I say that even though, according to the banke... | 879 |
fomc | 1,995 | Mr. Chairman, I agree with your recommendation for "B" symmetric. I think that the last time we were, somewhat appropriately, more concerned about inflation than we need be now, even though I think we must stay alert. And therefore the "B" symmetric resolution is the appropriate one. | 59 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | I, too, am in agreement with your proposal, Mr. Chairman. There are a couple of things that I think we need to be concerned about. First, where are the uncertainties? You have talked a bit about that. And secondly, what are the costs of being wrong in either direction even if the uncertainties are more or less balanced... | 309 |
fomc | 1,995 | The way I put it is that I am more nervous about the asset bubble than I am about product prices. That is not to say that I would disagree with you. There may be more than a cyclical element in here that we won't know about until after the fact. I think most of it-- | 61 |
fomc | 1,995 | Is cyclical. | 4 |
fomc | 1,995 | Is cyclical, but such inflation is not acceptable as far as I am concerned. President McTeer. | 22 |
fomc | 1,995 | I think the risks are somewhat unbalanced to the down side, and I think the recent performance of the economy would argue for some easing today, but the markets have already done that, both interest rates and the exchange market. I think they already are providing some support for the economy. I agree with your recomme... | 63 |
fomc | 1,995 | President Broaddus. | 5 |
fomc | 1,995 | I certainly agree with your recommendation, Mr. Chairman. When I made my economic statement, I pointed out that we face two risks currently--a continuing longer-term inflation risk but also a not inconsequential possibility that the current weakness in the economy may cumulate. If the latter situation were in fact to m... | 381 |
fomc | 1,995 | President Boehne. | 5 |
fomc | 1,995 | I support "B" symmetric. | 7 |
fomc | 1,995 | President Parry. | 4 |
fomc | 1,995 | Mr. Chairman, I support your recommendation. I agree that in the short term the risks seem reasonably well balanced, although I share the same views as President Minehan about emphasizing the possibility that inflation may be a little higher than our forecast in the shorter term. I would suggest, however, that if we in... | 97 |
fomc | 1,995 | President Forrestal. | 4 |
fomc | 1,995 | Mr. Chairman, I think we ought to be fairly happy with the course of monetary policy over the last year and the results that it has achieved in the economy. There obviously are uncertainties surrounding the forecast. The concerns that you point to with respect to the asset price bubble are real, but I think that those ... | 110 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | I think the wisdom of your recommendation is evident, and I'll adopt Bob McTeer's words as my own. | 22 |
fomc | 1,995 | Governor Kelley. | 3 |
fomc | 1,995 | Mr. Chairman, I support "B" symmetric. | 11 |
fomc | 1,995 | President Moskow. | 4 |
fomc | 1,995 | Mr. Chairman, I support "B" symmetric as well. I am concerned about the asset bubble problem you mentioned. I think it is a real one down the road. We may see some signs of an increase in the inflation rate in coming months, but at this point it appears that that increase will be transitory. There is some danger of giv... | 126 |
fomc | 1,995 | Governor Phillips. | 3 |
fomc | 1,995 | I agree with "B" symmetric. It seems to me that this is a time to keep the monetary policy powder dry. | 25 |
fomc | 1,995 | President Hoenig. | 4 |
fomc | 1,995 | Mr. Chairman, I agree with "B" symmetric. I do have concerns, as I mentioned earlier, that the inflation may be more than cyclical, and I agree that it is wise to wait and see. | 44 |
fomc | 1,995 | President Stern. | 3 |
fomc | 1,995 | I, too, agree with "B" symmetric. The only comment I would add is that when I submitted my Humphrey-Hawkins numbers earlier this year, I was relatively negative about the inflation outlook, at least for this year. Unfortunately, nothing has happened to change my view about that. On the other hand, looking at all the in... | 110 |
fomc | 1,995 | Governor Yellen. | 4 |
fomc | 1,995 | Mr. Chairman, I support your proposal for "B" symmetric. I think that an unchanged funds rate is warranted given the Greenbook forecast with risks roughly balanced. | 33 |
fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | I agree with no change at this meeting. | 9 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | I favor "B" symmetric as well, Alan. I think our focus has to be on pursuing a policy that contains current inflationary pressures and is aimed at making progress toward longer-term price stability. I am not, as you know, a great fan of short-run fine-tuning. I think we are seeing a slowdown from a nonsustainable rate ... | 202 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | I support your proposal, Mr. Chairman. | 9 |
fomc | 1,995 | Would you read the directive. | 6 |
fomc | 1,995 | The directive is on page 15 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, and giving careful cons... | 108 |
fomc | 1,995 | I think you mean "might." | 7 |
fomc | 1,995 | It is symmetric. | 4 |
fomc | 1,995 | I used "would" for both. | 8 |
fomc | 1,995 | Somewhat or slightly? | 5 |
fomc | 1,995 | It doesn't matter. | 4 |
fomc | 1,995 | So we use "somewhat" for both. | 10 |
fomc | 1,995 | As long as they are the same. | 8 |
fomc | 1,995 | As long as they are the same for both. Do we usually use "would" when the directive is symmetric? | 23 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | There have been exceptions, but "would" is used most of the time. | 16 |
fomc | 1,995 | I think we should use "would." We are voting on "B" symmetric. Call the roll. | 21 |
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 | The next meeting is the multiple day meeting, July 5th and 6th. I gather it will be held in Dining Room "E" because we are going to be renovating this room. This is as early as we have ended a meeting in quite a while. [Secretary's note: The meeting ended at 12:15 p.m.] | 73 |
fomc | 1,995 | If anyone heard that, it fundamentally disproves his proposition, there being no microphone sitting in front of Norm! [Laughter] | 26 |
fomc | 1,995 | Make sure none of them is an 18-1/2 minute gap! | 16 |
fomc | 1,995 | Who would like to move the approval of the minutes? SEVERAL. So move. | 18 |
fomc | 1,995 | Without objection. Peter Fisher, you are on. | 10 |
fomc | 1,995 | [Statement--see Appendix.] | 6 |
fomc | 1,995 | Questions for Peter? Governor Lindsey. | 7 |
fomc | 1,995 | I have two, Peter. First, could you just quickly repeat the part about the Mexican transaction? | 20 |
fomc | 1,995 | For value today, the Mexicans are drawing an additional $2.5 billion on the medium-term facility. That brings to $10.5 billion the amount that has been drawn on the facility the Mexicans have with the Treasury. For several months we and the Treasury each have had outstanding $1 billion drawings on our respective short-... | 148 |
fomc | 1,995 | Second question: There seems to be a decline in the amount of liquidity in the foreign exchange markets brought about particularly by redemptions by hedge funds and others. Do you think that has implications for the efficacy of intervention down the road? If the private sector has fewer poker chips, might we actually s... | 65 |
fomc | 1,995 | That's a very important and difficult question. I would put the emphasis slightly differently than you. I think the interbank community has been reducing its risk appetite and has been quite nervous not just in the last period but for the whole six months of this year. It's that reduction in the risk-taking appetite of... | 212 |
fomc | 1,995 | We only know about the individual withdrawals--I guess they are called redemptions. Do we have any sense at all of how big the market is and how much it has shrunk? | 38 |
fomc | 1,995 | We have a survey on turnover in the foreign exchange market, based on April data. We still don't have all the data, but it will give us a three-year to three-year snapshot. The better comparison is to talk to the major interbank firms to get a sense of foreign exchange market liquidity and what is happening to their vo... | 129 |
fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | Peter, I want to follow up on what you said about Mexico, because something went by me awfully fast there. You said the Treasury has monetized SDRs to fund the Mexican drawing. Can you explain that a little? | 46 |
fomc | 1,995 | One of the resources of the ESF is SDRs. The process of monetizing them and presenting them to us--let me say if I am explaining something wrong, Sandy, please bail me out--we take them in and they get dollars for them. And that is the major-- | 58 |
fomc | 1,995 | They sell us SDR certificates. | 6 |
fomc | 1,995 | They sell us the SDR certificates; they get the dollars and we have the SDR certificates. That then is an injection of liquidity that we have to worry about and sterilize as we would any other form of intervention in that sense. So, that's the process of providing them dollars: monetizing the SDRs. | 62 |
fomc | 1,995 | But we, the twelve Federal Reserve Banks, own our respective shares of these SDR certificates based on the capital of our banks? | 25 |
fomc | 1,995 | Right. | 2 |
fomc | 1,995 | How are we informed that we own them? How is my bank informed that we now have that in our portfolio? | 23 |
fomc | 1,995 | It's published on the weekly H.4.1 statement; I don't know whether there is a separate internal notification. There already are $8 billion of special drawing rights outstanding in addition to the $11 billion of gold stock. | 45 |
fomc | 1,995 | I think President Jordan is asking whether somebody is going to call him up and say "You have just become the proud possessor of an increased amount of SDR certificates." He is asking: "What's on my bank's liability side?" | 46 |
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