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fomc | 1,995 | Right. | 2 |
fomc | 1,995 | So, why are we not taking our level of commitment back down to $1-1/2 billion? | 22 |
fomc | 1,995 | The original $3 billion was associated with the regular program. | 12 |
fomc | 1,995 | There are two $3 billion swap arrangements; think of it that way. There is the basic $3 billion, which was what we already had in place. Then we added a supplemental one last December of $1.5 billion, which was increased to $3 billion on February 1. It's just a coincidence that it was $3 billion. Now, we are letting th... | 95 |
fomc | 1,995 | The other part of the confusion is that the Treasury also has a $3 billion swap line with the Mexicans. | 23 |
fomc | 1,995 | There are lots of threes. | 7 |
fomc | 1,995 | Too many threes around here. | 7 |
fomc | 1,995 | Further questions for Peter? Cathy. | 7 |
fomc | 1,995 | Just a couple of factual questions: The $650 million is from the regular swap line or from the temporary one that was part of the program to help Mexico last year? | 34 |
fomc | 1,995 | It's drawn under the regular swap line. They never drew enough to get into the supplemental or temporary $3 billion. | 23 |
fomc | 1,995 | Is it a function of our regular swap program that we are repaid by the Department of the Treasury? | 21 |
fomc | 1,995 | One of the conditions for the Committee's approval of the Mexican drawings was that we would be repaid either way--that is, by the Mexicans or by the U.S. Treasury. | 38 |
fomc | 1,995 | The Treasury would repay us, if necessary, under either program on any part of the $6 billion? | 21 |
fomc | 1,995 | I think it was just an accounting convenience that we assigned these drawings to their regular swap line. We could have done it the other way around; it might have been somewhat more logical. | 37 |
fomc | 1,995 | I just wanted to understand that. Secondly, the North American Framework Agreement (NAFA) was to provide a forum, according to footnote 2 in your memo, for more regular consultations on economic and financial developments. Has that worked? | 48 |
fomc | 1,995 | My view is that it has worked, though maybe not as well as it should have. In particular, there have been stepped up consultations at all levels among all three countries, some bilateral and some trilateral. I think in fact one of the most useful things that was done--the only thing I think we did right--was that Peter... | 135 |
fomc | 1,995 | Combining that with the additional transparency that the IMF obtained from the Mexicans in terms of some of their data reporting, do we feel that we would not have been in the situation that we seemed to be in earlier in terms of our knowledge of how much their reserves were being depleted? | 57 |
fomc | 1,995 | The capacity of central banks to manipulate their reserves is quite substantial, but even in 1994 I think we had a pretty good fix on their reserves, though we may not have kept the Committee as well informed as we should have. | 47 |
fomc | 1,995 | It is 1994 that I was getting at. | 11 |
fomc | 1,995 | I think you need to separate the question of whether the market had a good sense of a number of data points from their balance sheet and macroeconomics and whether we had good information about their reserves. There were only a very few days in December 1994 when we were, I think, at a loss and a little anxious about w... | 128 |
fomc | 1,995 | The one thing that has happened since we circulated Steve Kamin's memo is that they have adopted a new framework for their monetary policy. This is not a big deal, but they have adopted more conventional definitions of their domestic assets and international reserves than they used in the past. I think this will facili... | 118 |
fomc | 1,995 | I wasn't so concerned about whether the market knew. I was more concerned about whether we know in a timely way. | 23 |
fomc | 1,995 | Partly because of these calls that Peter has arranged and other contacts, we are much more informed than we were. We can't avoid all surprises. | 29 |
fomc | 1,995 | A final question: There is an implication in your memo that while we will approve this renewal, we won't necessarily be receptive to letting them use this swap arrangement for a number of different reasons. Is that a wrong implication to draw from this memo? | 49 |
fomc | 1,995 | I think that's the right implication and inference, if I may put it that way. I can't speak for the Committee. We did have a visitor last Friday from the research directorate of the Bank of Mexico. I went over both the fact that we would not renew the $650 million drawing and that that was a matter for him to take up w... | 153 |
fomc | 1,995 | So they don't expect to use the swap facility either. | 11 |
fomc | 1,995 | That's one of the reasons why I think their preferred position would be for the Treasury to roll over the two drawings. They have a $650 million short-term swap outstanding with the Treasury too, and I think the Mexican position would be that they would like to roll the two together into a medium-term obligation to pro... | 84 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | Certainly that's their position; I think that's a logical position as well. | 14 |
fomc | 1,995 | The sole roadblock is this certification issue? | 9 |
fomc | 1,995 | I don't know whether that's the sole roadblock, but that's an issue that we wanted to surface. The staff felt that it was a little arcane, and I apologize that the memo may not have been clear. The truth of the matter is that even absent that issue, given everything else going on, the objective of the program was basic... | 129 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Alan, I have a general question about whether we are going to look at these swap arrangements in any broad and organized fashion. I know you have mentioned before and others have said here that, in the foreign exchange markets in which we operate today, these arrangements are of questionable usefulness and ought to be ... | 99 |
fomc | 1,995 | The answer is "yes." | 6 |
fomc | 1,995 | Okay. Will that involve discussions with counterparties in general about foreign exchange intervention and the support facilities? | 20 |
fomc | 1,995 | I think we should first discuss it amongst ourselves here before we decide to involve anyone else. The ideal solution to this obviously anachronistic setup is not necessarily to abandon all such arrangements because they are being employed as a means of linking us with other central banks, but to replace them with some... | 108 |
fomc | 1,995 | The other issue that I think is difficult is that swap lines to developing countries can be troublesome. I know that we have North American trade considerations. However, as we learned in this case, what was intended for one purpose in effect drags us directly or indirectly into what I would characterize as intermediat... | 96 |
fomc | 1,995 | I am not as worried as you are about the independence question, but I certainly agree that what we have serves no economic or financial purpose of which I am aware. President Broaddus. | 38 |
fomc | 1,995 | Under the current arrangement, we have an agreement with the Treasury that they will take us out if the Mexicans don't pay back the current drawing. I may be mistaken, and this is just a point of clarification, but I seem to have read or heard somewhere that if we renew the swap line and if there is a drawing despite o... | 100 |
fomc | 1,995 | As was outlined in the memo, the Treasury is subject to the certification process of the Mexican Debt Disclosure Act. In addition, the Treasury appropriation for fiscal year 1996 contains a provision that limits the extent to which they can use the ESF for operations without Congressional approval. Since they may take ... | 184 |
fomc | 1,995 | I think it's important to keep in mind that we have not thought of Treasury takeouts as the presumption under which we have swap lines. It was a presumption under which the Committee undertook this drawing in the set of circumstances that existed in January, including the President's program, but reliance on Treasury t... | 76 |
fomc | 1,995 | I am focusing specifically on whether there could be a Treasury takeout if the current arrangement were continued and a further drawing were made. | 26 |
fomc | 1,995 | There would have to be an assured means of repayment for any drawing under the general arrangements. Actually, the Mexican Debt Disclosure Act has a provision requiring an assured means of repayment in our case. So, we would have to have some sense of how the System was going to get repaid in any case. In the particula... | 118 |
fomc | 1,995 | Any further questions for either gentleman? | 7 |
fomc | 1,995 | I move approval of the $3 billion swap line renewal, Mr. Chairman. | 16 |
fomc | 1,995 | Is there a second? SEVERAL. Second. | 11 |
fomc | 1,995 | Without objection. Would you like to continue on, Peter? | 12 |
fomc | 1,995 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,995 | Questions for Peter? | 4 |
fomc | 1,995 | Peter, you mentioned that the bond market was selling off further this morning. What is it doing now? | 21 |
fomc | 1,995 | The long bond is at 6.22 percent, I think, so it is backing up a bit. The middle of the maturity range is also backing up. | 33 |
fomc | 1,995 | There was more news on the budget and, as I understand it, more pessimism about the prospects for an agreement. | 24 |
fomc | 1,995 | How many 32nds was that down? | 9 |
fomc | 1,995 | It was down about 1/2 point. | 10 |
fomc | 1,995 | Yes, 1/2 point. In yield, the long bond traded up to 6.22 percent early overnight in Tokyo, came down to 6.18 percent, and was back up to the 6.22 - 6.24 percent range in the last hour. | 58 |
fomc | 1,995 | (Consulting a pocket electronic market monitor) The truth is the markets are down 10/32. The cash market for the long bond is at 6.22 percent. | 36 |
fomc | 1,995 | You are our official source on the matter of long-term bond rates! [Laughter] | 18 |
fomc | 1,995 | With all the technology we have in this room, I can't have a little old gadget? | 18 |
fomc | 1,995 | It's in the transcript that you made that remark! [Laughter] | 14 |
fomc | 1,995 | Sorry. Further questions for Peter? | 7 |
fomc | 1,995 | I move approval of his domestic transactions. | 8 |
fomc | 1,995 | Is there a second? | 5 |
fomc | 1,995 | Second. | 2 |
fomc | 1,995 | Second. | 2 |
fomc | 1,995 | Without objection. Let's move on to the staff reports. Mr. Prell. | 16 |
fomc | 1,995 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,995 | Questions? Vice Chairman. | 5 |
fomc | 1,995 | This isn't a question, just a comment on the economic situation. | 13 |
fomc | 1,995 | If there are no questions--yes, President Moskow. | 12 |
fomc | 1,995 | Mike, this is a question on the Greenbook. On Page 1-12, your report projected an increase of 100,000 payroll employment jobs per month over the next two years, the 1996-1997 period. This is keeping in mind that we are dealing with a forecast of close to potential output during this period. I was wondering about this 1... | 137 |
fomc | 1,995 | One feature of the latest forecast is a change in our projection of labor force growth. As we have reported from time to time over the past few years, we have been surprised by the lack of rise in the labor force participation rate. The most recent observation was distinctly short of our expectations. So, we have flatt... | 204 |
fomc | 1,995 | Further questions for Mike? If not, Vice Chairman, do you want to start off? | 18 |
fomc | 1,995 | Yes. The Second District continues to show slow growth essentially across the board. Retail sales for the holiday period have been quite weak in New York, although the more upscale stores like Saks Fifth Avenue have been doing reasonably well, perhaps to some degree because of the considerably higher bonuses from the f... | 878 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. I wanted to focus on one of the points that Mike Prell made, and that is how we could interpret the likely consumption response to the rise in asset values. He was kind enough to share the regressions with me. The general story is that the marginal propensity to consume from an incremental stoc... | 473 |
fomc | 1,995 | That includes taxes? | 4 |
fomc | 1,995 | No. Personal taxes and direct taxes are out of both columns three and four. | 16 |
fomc | 1,995 | But adjusted gross income includes taxes. | 7 |
fomc | 1,995 | That's true, but I computed "after tax" adjusted gross income. I started with AGI and and took out federal, state, and employee FICA taxes. | 33 |
fomc | 1,995 | It says that on your table. I beg your pardon. | 12 |
fomc | 1,995 | As you can see, it doesn't make that much difference, but I allocated that portion of disposable personal income that was not in AGI in proportion to wages and that gives me the last column. Then comes the thought experiment. Let's assume that we get a $50 billion increment to consumption, which is about 1 percent of p... | 763 |
fomc | 1,995 | Let me note just another channel that may or may not be relevant. Higher stock market values tend to be associated at a micro level with higher capital investment within a firm. That increase in capital investment spills through into disposable income and could have an impact that way. So, it is quite conceivable that,... | 129 |
fomc | 1,995 | I think that is a very fair observation and I would be happy to use that to supplement my interpretation of the regression. The regression had labor income, capital income, transfer income, and wealth in it. So, I would expect that that would appear in that transition. The extra capital spending might feed through into... | 83 |
fomc | 1,995 | It does. I am just saying that if that channel is working vigorously, you could reconcile both these data and the reduced form regression of the wealth effect on consumption. | 33 |
fomc | 1,995 | As I read it, the income was in the regression. | 12 |
fomc | 1,995 | Just a point of fact: Does the regression have labor income on the right or total income on the right? | 22 |
fomc | 1,995 | I don't know what this particular regression is. I assume we are talking about the MPS model. | 20 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | The MPS model has both labor income and property income on the right-hand side. | 17 |
fomc | 1,995 | They are in there as well as the stock market. | 11 |
fomc | 1,995 | Let me say, we are looking at net worth in the model, so that also shows up, which is the other side that you cited in passing at the end of your comments. Could I clarify one point without getting into an argument about the construction of these numbers? There is no significant wealth effect built into our forecast. I... | 143 |
fomc | 1,995 | So, the consumption levels in the forecast do not reflect those from the MPS model? | 18 |
fomc | 1,995 | No. | 2 |
fomc | 1,995 | President Boehne. | 5 |
fomc | 1,995 | Thank you, Mr. Chairman. The basic story in the Philadelphia District is essentially the same. Mainly, the region is a laggard compared to the nation. The outlook is for more of the same. Much of the laggard effect is coming from Pennsylvania; Delaware and New Jersey compare more favorably to the nation. On balance, th... | 520 |
fomc | 1,995 | Thank you. President Parry. | 7 |
fomc | 1,995 | Mr. Chairman, economic growth in the Twelfth District slowed this fall. California lost a considerable number of government jobs in October and November, particularly at the local government level. This job loss apparently boosted the state unemployment rate. However, private-sector growth appeared to have substantial ... | 551 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | Mr. Chairman, slow growth continues in New England. Nonfarm employment grew for the third straight month, although the overall gain was quite small. In total, the region's job count was up only slightly less than 1 percent over the previous year as compared with nearly 3 times that rate of growth over the 12 months pri... | 494 |
fomc | 1,995 | Doesn't that create a moral hazard? [Laughter] | 12 |
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