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fomc | 1,995 | There is a demand shock built into the baseline, which is the fiscal restraint needed to balance the budget by the year 2002. That is already in there, so you would not add more fiscal restraint on top of that unless you thought even greater fiscal restraint would be forthcoming. One could also imagine a situation in w... | 155 |
fomc | 1,995 | But that is not the demand shock that you had in mind? | 13 |
fomc | 1,995 | What we used was a saving rate shock, but I believe we noted that you could think of it also as a situation in which we had more fiscal restraint than we were expecting. | 36 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | I just want to ask a very brief question to follow up on what Governors Lindsey and Yellen were pursuing. If the M2 demand function works, what interest rate is assumed tacitly in a 3 percent M2 growth forecast? How much higher is it than current interest rates? | 58 |
fomc | 1,995 | In terms of a trend interest rate? | 8 |
fomc | 1,995 | No, in terms of 1996. The point was made that what we would like any of these things to be doing over the longer-term horizon may be one question, and what we would like for 1995 and 1996 may be another question. I was trying to ask the easier question--from now until the end of 1996. | 72 |
fomc | 1,995 | I'm not sure it is easier! Of course, the staff has 4-1/2 percent M2 growth projected for 1996 with the interest rates of the Greenbook, and that means a gentle decline in interest rates toward the middle of 1996. If I used the interest rates of the tighter scenario--that is, the 75 basis point increase--that gets the ... | 92 |
fomc | 1,995 | The question is what interest rates would we need to make the midpoint? The staff has M2 growth of 4-1/2 percent in the baseline and 5-1/2 percent in the easier alternative. But as was pointed out, those are funny numbers if you are aiming for 3 percent. | 63 |
fomc | 1,995 | It would require slightly more tightening than the tighter forecast. The tighter forecast has M2 growth of 3-1/2 percent; to make the 3 percent you would need slightly higher interest rates, perhaps avoiding the drop in interest rates in the second half of 1996 or you might have to raise rates a bit and keep them up. I... | 84 |
fomc | 1,995 | Thank you. | 3 |
fomc | 1,995 | I would like to emphasize the point that there are many kinds of interest rate paths that one could imagine. If you moved rates down very sharply in the short run and they were to flatten out or even come back next year, that might have some implications for growth next year; in particular, M2 growth might not run appr... | 104 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | I want to explore a little further Don's answer to Governor Yellen. I think in the past the Committee has lowered the ranges in part because we thought that the trend velocity of M2 had increased somewhat. It was not that we believed that the ranges should be consistent with 3 percent growth in nominal GDP. The latter ... | 160 |
fomc | 1,995 | President Parry. | 4 |
fomc | 1,995 | It seems to me that we are still in a position where we don't have a great deal of confidence about the relationship between the growth of the aggregates and the growth of the economy. In the past, I think we have acted in a way, as Cathy indicated, where we have used the ranges to convey a message, and I think we prob... | 241 |
fomc | 1,995 | Any further questions for Don? If not, let me just say something that I think is on the table, and I will start off the roundtable. If we presume that the velocity of M2 is finally going to return at some point to the stability experienced for a very long period of time, all the arguments that are being made with respe... | 633 |
fomc | 1,995 | In my view, Mr. Chairman, that is both an accurate and a sensible statement. There is a dog over in the corner and he is asleep and his name is Aggregates and we ought to let him sleep for another year or two. | 49 |
fomc | 1,995 | Vice Chairman. | 3 |
fomc | 1,995 | Mr. Chairman, I agree that it would be ill-advised to change the M2 range at this stage, especially in light of the possibility, as you postulated, that we might ease monetary policy. You would spend an hour and a half of your Humphrey-Hawkins testimony explaining the changes in something that we don't take seriously. ... | 149 |
fomc | 1,995 | President Broaddus. | 5 |
fomc | 1,995 | I certainly agree with your recommendation regarding M2, Mr. Chairman. With respect to the other aggregates, I would favor alternative II for 1995 and alternative I for 1996. Having said that, let me make just a couple of additional comments, if you will indulge me. I think, as the discussion is showing, that we all ac... | 563 |
fomc | 1,995 | I think you have raised some very interesting points. May I ask, if you are not going to use the monetary aggregates, will you just give us 20 seconds on what you would propose? | 39 |
fomc | 1,995 | I was going to lay out a strategy as briefly as I could. A key point I want to make is that the current situation gives us an opportunity to recommend something in terms that are fairly concrete rather than in the abstract. In my view, we can develop a more operationally meaningful longer-term monetary policy strategy.... | 146 |
fomc | 1,995 | Are you talking about a statute or unilateral action by the Federal Reserve? | 14 |
fomc | 1,995 | It would be preferable to have a statute, but I think we can go a significant distance in the direction I am recommending even without a statutory change. I am not recommending explicit numerical targets. It seems to me that it is feasible to adopt something like the Neal language in the context of the current law. I w... | 860 |
fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | I want to start off with a couple of comments related to what Al Broaddus was just saying. This is the 20th anniversary of Concurrent Resolution 133. That resolution was adopted in the aftermath of the first oil shock as a device to put boundaries on inflation in keeping with the notion at that time that there was some... | 700 |
fomc | 1,995 | President Hoenig. | 4 |
fomc | 1,995 | Mr. Chairman, I agree with where you are coming from. We have systematically deemphasized these ranges because they have not been reliable, and I think it would be presumptuous at this stage to conclude that we know where velocity is going to be. And so I would feel comfortable with alternative I for the 1995 ranges; I... | 99 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | Mr. Chairman, I had the unfortunate pleasure of having my maiden interview with the American Banker quoting me as saying that I am an M2 kind of guy. | 32 |
fomc | 1,995 | I really thought that was a small typographical error! [Laughter] | 15 |
fomc | 1,995 | I understand exactly where you are coming from, but I will phrase it a little more cynically. If after a year M2 growth is above the top of the target range, you will suggest then that we once again shift the range up as we shifted it down because growth was coming out near or below the bottom of the range. | 67 |
fomc | 1,995 | I was suggesting that when it is our judgment as a Committee that M2 is something that we should be discussing and focusing on with respect to policy, we really ought to be serious at that point as to where we want to set the M2 range. In that context I think the types of arguments that you and Governor Yellen are maki... | 88 |
fomc | 1,995 | Given that you are the one who will be up on the Hill to testify on these issues, I am willing to go along with your suggestion. My preference would be to go back to a higher range. I would go for what I would call alternative III for 1995, which would mean raising M2, and alternative II for 1996. In fact, there is no ... | 212 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | Along the lines of my comments earlier, I am in agreement with not making any changes in M2. You did not address M3 in your comments, Mr. Chairman, but I would be a little more comfortable making a change, particularly for 1996, basically because I think that range has gotten extraordinarily low. The arguments the staf... | 117 |
fomc | 1,995 | President Stern. | 3 |
fomc | 1,995 | Mr. Chairman, with regard to the aggregates, I certainly take your comments to heart. In light of that, I would favor alternative II for 1995 and alternative I for 1996. I would not change the M2 range. After listening to Don, the explanation for changing the M3 range seems straightforward, and in that sense I would go... | 89 |
fomc | 1,995 | I agree with that. M2 is the crucial aggregate. | 12 |
fomc | 1,995 | With regard to some of the issues that Al Broaddus raised, I think his points are well taken. We ought to be looking at monetary policy as it relates to inflation. My reservations have to do with my impression that a couple of his points in some sense jump the gun. They have to do with two issues in particular. Don Koh... | 371 |
fomc | 1,995 | President Parry. | 4 |
fomc | 1,995 | Mr. Chairman, I have a great deal of sympathy for what President Broaddus said, and I think we ought to give serious consideration to it. With regard to the upcoming Humphrey-Hawkins testimony, I favor setting monetary targets that are likely to be consistent with policy goals in the long run. The current range for M2 ... | 181 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Alan, I agree with your concerns about moving the M2 range now and how that might be interpreted. I would not change that range. With regard to M3, I am most comfortable with the rationale that Bob Parry just described with respect to taking a look at long-term trends and viewing M3 on a basis consistent with what we h... | 208 |
fomc | 1,995 | We probably will have to respond to a bill on the Hill at some point. Our response will have to capture the view of this Committee in its various aspects as they have been raised, largely pro and con, by you, Al Broaddus, and the rest of us. It is going to be our one shot at the legislation, and I am a little concerned... | 124 |
fomc | 1,995 | I agree and I felt that way when we talked about this in February. The more leadership we exercise in this, the better off we are going to be in terms of the ultimate outcome. There are different points of view on this issue, but I think it would be very unfortunate if, for example, we got to a year from now and we wer... | 208 |
fomc | 1,995 | President Forrestal. | 4 |
fomc | 1,995 | Mr. Chairman, your initial remarks about the ranges for the monetary aggregates are quite appropriate and I agree with them entirely. We are confronting a number of issues in monetary policy at the moment, and some of those are going to come up as they usually do in the Humphrey-Hawkins testimony. Changing the ranges w... | 291 |
fomc | 1,995 | Governor Phillips. | 3 |
fomc | 1,995 | I favor alternative II for 1995 and alternative I for 1996. I find myself quite frustrated with this discussion. I think part of it has to do with our not really knowing whether the ranges are something we should be shooting for--whether they are long-term objectives, or whether they are in effect short-term monitoring... | 224 |
fomc | 1,995 | My suspicion, incidentally, is that if we are confronted with a legislative initiative to which we have to respond, that might require us to have a special meeting to discuss it or an addition to the agenda at a regular meeting that extends the discussion. It is not going to be easy to respond. However, if we have spec... | 103 |
fomc | 1,995 | Mr. Chairman, I favor alternative II for 1995 and alternative I for 1996. In terms of the last point that we were just discussing, assuming that we will have to respond to some type of legislative initiative, I think it would be desirable for us to try to get ahead of the curve, as you were anticipating in your earlier... | 106 |
fomc | 1,995 | We have been doing that for the last several years in part to respond to and capture--not to an exact extent but to a large extent--what we have been hearing around this table. However, when we are confronted with specific legislative language we will have to try to tie down the issue and not just float interesting ide... | 112 |
fomc | 1,995 | I agree and the legislative proposal would be the action forcing the event. What I am suggesting is that in anticipation of that coming legislation-- | 27 |
fomc | 1,995 | I agree with that and I think we will start doing that as we begin to interact with the committees up on the Hill. | 25 |
fomc | 1,995 | I was hoping that in the work that will be done, we could see some alternative specific language. | 20 |
fomc | 1,995 | Why don't I suggest this: Don Kohn is doing a good deal of work on this sporadically; he is the staff's point person on this issue. If you have any ideas that you want to put forward, I think it would be very useful for you to communicate them, hopefully in writing, so that we can all see them. You might send them to D... | 105 |
fomc | 1,995 | Mr. Chairman, I would prefer alternative I for 1996. In the case of 1995, I would also prefer alternative I because I have a problem with changing benchmarks in the middle of the stream. I think we lose a lot when we do that in terms of our ability to discuss and judge changes that have occurred intra-period. Certainly... | 171 |
fomc | 1,995 | President McTeer. | 5 |
fomc | 1,995 | Alternative II for 1995 and alternative I for 1996 seem okay to me. I would like to associate myself with remarks that Al Broaddus and Tom Melzer have made. On our discussion relating to possible legislation, has there been any further dialogue with Senator Mack and is his proposal still the most likely that we will ne... | 71 |
fomc | 1,995 | It seems to be the only operative proposal at the moment. We have been trying to persuade the Senator and his staff to take an approach similar to what has been sort of the generic thinking here. If we have not circulated a copy of my letter to Senator Mack, I think it would be quite useful to do so. | 64 |
fomc | 1,995 | Your letter has not been sent yet, Mr. Chairman. | 12 |
fomc | 1,995 | It has not been sent? I thought it would be going out. | 14 |
fomc | 1,995 | I wanted to talk to them about it before sending the letter over. | 14 |
fomc | 1,995 | A letter will be going out! [Laughter] I said in the letter that I was not speaking for the Board or the FOMC but was expressing my own views on certain issues. But I must say that I tried, as I formulated my letter, to take into consideration a number of the views that I have heard around this table. I said that my th... | 117 |
fomc | 1,995 | I think it would be important for us to give Senator Mack the impression that we are eager to work with him on this--not the impression that he is dragging us along kicking and screaming. | 38 |
fomc | 1,995 | No, and we are trying specifically to do that. Where we think he has a view that would be very difficult to implement, we have been trying to communicate that opinion. Does anybody else want to comment? Governor Yellen. | 46 |
fomc | 1,995 | I would like to associate myself with Governor Lindsey's comments. I would favor alternative III for 1995 [Laughter] and alternative II for 1996. I certainly understand the sentiments that you expressed, Mr. Chairman. This is not the most important decision we are going to make this morning. I think we are dealing with... | 375 |
fomc | 1,995 | I don't think it said money supply. | 8 |
fomc | 1,995 | You have a point. | 5 |
fomc | 1,995 | It would be an appropriate monetary policy-- | 8 |
fomc | 1,995 | However defined. | 3 |
fomc | 1,995 | --consistent with our projections for nominal GDP. | 9 |
fomc | 1,995 | Yes. There is no M2 or anything else specified in the instructions. | 15 |
fomc | 1,995 | But I think Bob Parry said that the nominal GDP projections, or their central tendency, should not be interpreted as our objectives. Did I misread that? | 32 |
fomc | 1,995 | No, you didn't. I get the impression that people have at times forecast what is going to happen as opposed to what they would like to see happen. I could be very wrong on that. | 39 |
fomc | 1,995 | That is where I was coming from. I understand why you don't want this to be a central issue of the testimony. In the case of 1995 we have language for M3 that says that raising its range is a technical adjustment. You don't seem to feel that M3 is going to be the focus of the Humphrey-Hawkins testimony. It seems to me ... | 129 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | I am in the Lindsey-Yellen camp here, but I must say that I have a little trouble articulating a view on the Ms. I find myself mumbling with great incoherence in the extreme; these Ms are a problem. On your first point, I agree entirely. These are basically gibberish numbers; we don't take them seriously; the markets d... | 141 |
fomc | 1,995 | The reason basically is that the M2 range is wholly an accident of history. M2 has become a crucial variable in discussions on the Hill. | 29 |
fomc | 1,995 | It used to be M1. | 7 |
fomc | 1,995 | Yes. I am just saying that if you are asking for a rational reason for the current M2 range, I can't find one. | 27 |
fomc | 1,995 | Right, I don't think there is either, and it is hard for me get exercised about this issue one way or another. Now, unlike the mumbling with great incoherence, there were two things that were said around the table that I can relate to very strongly. First, the kind of plan that Al Broaddus outlined seems to me greatly ... | 249 |
fomc | 1,995 | Are we returning to the ranges and the vote on them? | 12 |
fomc | 1,995 | Even though we are required to vote on 1995 and 1996 ranges, let me suggest--can we vote on M2 separately for 1995 and 1996? | 37 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | As far as I can judge, there seems to be a broad willingness, if I may use that term, to do nothing on M2 for either 1995 or 1996, but I sense that there is a significant split with respect to M3; there may be a majority in favor of raising the M3 range. I am reasonably certain about the first proposition, and what I w... | 120 |
fomc | 1,995 | So the vote is whether people prefer 1 to 5 percent for M2 for both years? | 20 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder No President Hoenig Yes Governor Kelley Yes Governor Lindsey Yes President Melzer Yes President Minehan Yes President Moskow Yes Governor Phillips Yes Governor Yellen No | 44 |
fomc | 1,995 | On M3, the issue is whether to raise the range to 2 to 6 percent for both years or to stay where we are. | 29 |
fomc | 1,995 | There was a big majority in favor of 2 to 6 percent. | 15 |
fomc | 1,995 | That was my impression. I think nearly everyone was more comfortable with that higher range. So, let us vote on 2 to 6 percent for both years. | 33 |
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 | Short-term monetary policy--Don Kohn. | 9 |
fomc | 1,995 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,995 | Thank you. Let's cover any questions for Don; then we'll take a break for coffee. Yes, President Minehan. | 24 |
fomc | 1,995 | We have alternatives A, A-prime, and B? | 12 |
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