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fomc | 1,995 | Initially, it would-- | 5 |
fomc | 1,995 | Unless the New York Bank is holding them all and the increase is offset by deposits at the Fed wholly in New York-- | 24 |
fomc | 1,995 | The Treasury balance goes up. | 6 |
fomc | 1,995 | The mathmatical way is that the Treasury balance goes up, as we are all saying. That's the narrow answer. But the Chairman is asking-- | 30 |
fomc | 1,995 | And then we sell government securities, as they draw down the balance. | 14 |
fomc | 1,995 | That's not the question I am asking. If the liquification were wholly an issue of the Federal Reserve Bank of New York taking onto its books an SDR certificate and crediting the Treasury account for the $2 billion, then the transaction is complete and the Cleveland Bank goes its merry way and nothing happens. I think t... | 102 |
fomc | 1,995 | The current SDRs are distributed throughout the System the way every other asset is. | 16 |
fomc | 1,995 | I may be missing the point, but in terms of the System Open Market-- | 16 |
fomc | 1,995 | No, the point is that the liquification-- | 10 |
fomc | 1,995 | What's on the liability side? | 6 |
fomc | 1,995 | The Treasury takes its SDR certificate, gives it to the Federal Reserve, which simultaneously places the SDR certificate on the asset side of our consolidated balance sheet and increases the Treasury deposit on the liability side. That's what happens to the consolidated system. President Jordan is asking what happens a... | 110 |
fomc | 1,995 | It's done through the inter-District settlement account. | 10 |
fomc | 1,995 | It could be the inter-District settlement account; Cathy says it is. But the other point, Mr. Chairman, is that that deposit never shows up. The Treasury knows in advance that it is going to get $2 billion. It doesn't call $2 billion of funds in from the commercial banks. So, the Treasury deposit is $5 billion or $7 bi... | 85 |
fomc | 1,995 | This has nothing to do with commercial banks. This is basically a Federal Reserve crediting of the Treasury account for the amount of the SDR certificates. | 29 |
fomc | 1,995 | Right. Then the Treasury doesn't call in the funds. The Treasury's account-- | 16 |
fomc | 1,995 | No, the Treasury then disburses those funds to Mexico. | 13 |
fomc | 1,995 | On the same day. | 5 |
fomc | 1,995 | Wouldn't we just have a change of assets on the balance sheet? | 14 |
fomc | 1,995 | Yes. In other words the check is then drawn on the Treasury account, if you want to put it that way, and will end up in the Fed account for foreign central banks, or whatever we do with it. | 44 |
fomc | 1,995 | Maybe. | 2 |
fomc | 1,995 | But on the Cleveland bank's account their share of SDRs goes up and another asset goes down, right? | 22 |
fomc | 1,995 | That other asset is Treasury securities tHat Peter sells to offset the increase in SDRs. | 18 |
fomc | 1,995 | That's what happens to Cleveland's balance sheet. | 9 |
fomc | 1,995 | And it happens the same day. The Treasury's balance at the Federal Reserve never changes, whether the SDRs are issued or not. They target that at a given number; they know in advance what it is. They don't raise cash; they don't sell bills. | 53 |
fomc | 1,995 | So ceteris paribus, the total on Cleveland's balance sheet stays the same? SDRs go up and Treasury securities go down. | 28 |
fomc | 1,995 | You sterilize immediately so that our share of the Treasury portfolio goes down by the same amount at the same moment? | 23 |
fomc | 1,995 | Right. | 2 |
fomc | 1,995 | If I could just add one other factor-- | 9 |
fomc | 1,995 | I'm still not sure I understand this transaction. | 9 |
fomc | 1,995 | We will endeavor to have a simplified-- | 8 |
fomc | 1,995 | We still haven't discussed how the money gets to Mexico, where it is, and who draws the check. It's an interesting issue that I will reraise outside of this meeting, unless somebody needs to know. Maybe you already understand all this. | 49 |
fomc | 1,995 | One more fact is that this is a case in which the Federal Reserve has no choice as to whether it accepts SDRs. | 25 |
fomc | 1,995 | I understand that. | 4 |
fomc | 1,995 | In a lot of other transactions with the Treasury, the Federal Reserve has some choice. But the law says, I think, that the Secretary of the Treasury may issue SDR certificates and the Federal Reserve shall accept them. Period. | 45 |
fomc | 1,995 | Do we shift U.S. Treasury securites from our account to Mexico? Never mind! | 18 |
fomc | 1,995 | We will endeavor to clarify it for all interested parties. | 11 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Actually, I had a related question. I was curious about the same thing Jerry raised. Do we end up with an earning asset? Is there a way to earn anything on the SDRs that we hold or is that, in effect, a nonearning asset? | 53 |
fomc | 1,995 | It's nonearning. | 4 |
fomc | 1,995 | We reduce our earnings. When you're clarifying this, another question is: This is a repurchase agreement, right? | 24 |
fomc | 1,995 | No. It's outright. | 5 |
fomc | 1,995 | It's an outright purchase. | 5 |
fomc | 1,995 | Like gold certificates, it's an outright purchase; there are no repurchase agreements on the gold certificates. They are required to redeem them under some circumstances. | 30 |
fomc | 1,995 | This differs from my understanding, then, because in February or March or whenever, my understanding when we were going to take yen or deutschemarks-- | 29 |
fomc | 1,995 | That would be warehousing. | 6 |
fomc | 1,995 | That's warehousing. | 4 |
fomc | 1,995 | You are saying this is not warehousing, this is not a repurchase agreement? So, this is permanent. | 23 |
fomc | 1,995 | Correct. | 2 |
fomc | 1,995 | Permanent, yes. | 4 |
fomc | 1,995 | It's an acquisition of an asset, not a swap. | 11 |
fomc | 1,995 | I didn't know that. | 5 |
fomc | 1,995 | Any further questions for Peter? President Moskow. | 10 |
fomc | 1,995 | This is on another subject. | 6 |
fomc | 1,995 | I want to thank you! | 6 |
fomc | 1,995 | Peter, I was on the "morning call" this morning and one of the subjects was the fed funds futures rate. My recollection from this morning was that the fed funds futures rate is now indicating a 60 or 65 percent probability of a 25 basis point cut in the fed funds rate this month. I was just wondering how that ties in w... | 81 |
fomc | 1,995 | I think we heard the same thing from the same sources at different times this morning. Looking through the pricing of the contract and the different time horizons one has to adjust for, there is a 60ish percent probability, if you read it literally, of a move early in the month--meaning now. And there is an implied pro... | 126 |
fomc | 1,995 | But I thought I heard you saying that the majority of the opinion in the market was that there would not be a move. | 25 |
fomc | 1,995 | Yes. I was trying to offer a note of caution about whether you should read that price literally as saying that everyone in the market has agreed that those are the probabilities attached to a move or whether it's a clearing price between some who have a much higher sense of confidence that there will be a move earlier ... | 115 |
fomc | 1,995 | I think I've got it! [Laughter] You are telling me that the SDR certificate comes out of the Treasury and we cancel the Treasury obligation and it is wholly an asset swap so that the debt to the public of the U.S. Treasury goes down by that amount. Is that what happens? That solves President Jordan's problem too! [Laug... | 72 |
fomc | 1,995 | Can I follow up on that? The same thing happened when we changed the price of an ounce of gold from $35 to $38 and then to $42.22. The Treasury got a windfall of about $1 billion to $1.2 billion in both of those so-called devaluations. So an issue on this is: What was the dollar price of SDRs that we monetized? You say... | 103 |
fomc | 1,995 | It's about $42. | 5 |
fomc | 1,995 | It's $42.22; it's equivalent to the official price of gold. | 15 |
fomc | 1,995 | We do this at the official U.S. Treasury price of gold? | 14 |
fomc | 1,995 | Do you mean that we can lower the debt to the public by moving the price of gold up to the market price? That could cut the debt back by a not insignificant amount! | 36 |
fomc | 1,995 | I have been trying not to mention that publicly for fear that someone might want to do it. | 19 |
fomc | 1,995 | It's probably too late; we just mentioned it. | 10 |
fomc | 1,995 | It will become known five years from now! | 9 |
fomc | 1,995 | Five years from now, it will be read in the transcript for this meeting. | 16 |
fomc | 1,995 | By which time it already will have been done. | 10 |
fomc | 1,995 | Any further questions for Peter? If not, would somebody like to move to ratify the foreign currency transactions during the intermeeting period? | 27 |
fomc | 1,995 | I so move. | 4 |
fomc | 1,995 | Without objection. Similarly, would somebody like to move to ratify the domestic open market operations? | 19 |
fomc | 1,995 | So move. | 3 |
fomc | 1,995 | Then let's move on to the Chart Show with Messrs. Prell, Simpson, Slifman, and Ms. Johnson. | 26 |
fomc | 1,995 | [Statement--see Appendix.] | 6 |
fomc | 1,995 | [Statement--see Appendix.] | 6 |
fomc | 1,995 | [Statement--see Appendix.] | 6 |
fomc | 1,995 | [Statement--see Appendix.] | 6 |
fomc | 1,995 | Thank you very much. That was a very interesting around-the-world evaluation. Questions for our colleagues? | 20 |
fomc | 1,995 | Tom, could you briefly describe how that model that you mention on the bottom of Chart 8 is set up? I'm not sure I followed it. | 30 |
fomc | 1,995 | This is an exercise using the quarterly macroeconometric model. What is assumed here is that you are willing to lock in inflation basically at current or recent levels and to hold output at potential. Then, in the case of the so-called baseline here, we are taking the CBO's current raw estimate of the fiscal deficit. S... | 143 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | I want to follow up on that same chart, Tom. If I'm reading this right, it says that if the bond market, looking forward, feels that lower future debt is going to lead to lower future real interest rates, the fed funds rate stays fixed for four or five years. Is that what it says literally? | 64 |
fomc | 1,995 | Yes, right. | 4 |
fomc | 1,995 | That means that rates on instruments with maturities up to four or five years ought not to fall. Isn't that right? | 24 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | But this doesn't look a lot like what has happened recently. | 12 |
fomc | 1,995 | No. I might also point out that in this exercise the simulation starts in the second quarter. It doesn't start in the third quarter, so it doesn't acknowledge the large declines that we had in the second quarter. | 42 |
fomc | 1,995 | Right. | 2 |
fomc | 1,995 | But you're right. In the model, the longer-term rates that relate to housing and capital spending are driving the economy. The decline in the shorter maturities would not have that much effect on spending in the model. | 43 |
fomc | 1,995 | Does it follow that expected future deficit reductions should not move rates on intermediate maturities--say, two-year, three-year, four-year maturities? What you just said is that if the ten-year rate stays fixed, those maturities won't have much effect on spending, right? | 56 |
fomc | 1,995 | That's in the eyes of the model. | 8 |
fomc | 1,995 | Yes, absolutely, that's right. The other question I had was for Karen. In all of the G-7 economies--or rather the G-6, leaving out the United States--the forecast is for growth in the near term to accelerate by various amounts over what it recently has been. Presumably, in all the cases except Japan--and, heaven knows,... | 111 |
fomc | 1,995 | We actually have explicit interest rate paths built into what we have to say about these countries. I guess I would invert the question just a bit. I will deal with Europe first and return to Canada. These are countries that, as we perceive it, were exhibiting considerable momentum around the end of last year and even ... | 486 |
fomc | 1,995 | President Parry. | 4 |
fomc | 1,995 | Mike, I have a question, not specifically about something that came up in the Chart Show but about a paragraph that jumped out at me in the Bluebook, and I thought you might want to comment on it. There is a reference to a change in the NAIRU; it is now 5.9 percent in terms of your analysis. My recollection is that the... | 196 |
fomc | 1,995 | I guess it would be a fair request at some point for us to do another thick study. | 19 |
fomc | 1,995 | A thin one would be even better! [Laughter] | 12 |
fomc | 1,995 | One of the problems of comparing past studies with where we are now is the change in the current population survey. Even at this point we have some degree of uncertainty about how to translate today's unemployment rate into pre-1994 terms. So, that can be one ingredient in a comparison of old NAIRUs to new NAIRUs. As w... | 318 |
fomc | 1,995 | Thank you. | 3 |
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