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fomc | 1,996 | I am going to be very disappointed if we don't achieve your guideline in 1996, and I have some confidence that we will. But I think that will be a result of developments and polices that are already in train. | 46 |
fomc | 1,996 | Still, making it explicit in this way imposes discipline. It adds a degree of credibility and accountability that I think we don't have now. It would move us a step forward. I don't think it's revolutionary. It will never solve all our problems, put it's a step in the right direction. | 59 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | It will be a long time, if ever, before a consensus emerges about the success or failure of monetary targeting over the last 20 years or so. As far as I am aware, of all of the central banks around the world that have experimented with monetary targeting only the Deutsche Bundesbank continues to do so and continues to ... | 409 |
fomc | 1,996 | That's right. | 3 |
fomc | 1,996 | If we can enhance our own position, not only with regard to the Congress but with regard to the American public, by very clearly articulating and setting out a time path for achieving price stability and if--a big if--that is credible and people really believe we will deliver on it, we will minimize the transition cost... | 207 |
fomc | 1,996 | President Melzer. | 4 |
fomc | 1,996 | Alan, I have expressed my views on this topic before, and as you know I think we ought to be moving in the direction of setting longer-term inflation targets. I would not disagree with what you said before about the Mack legislation. I do not have any information that would suggest that the prospects for passage of the... | 847 |
fomc | 1,996 | President Boehne. | 5 |
fomc | 1,996 | I think credibility is earned by what we do, not what we say. We lost credibility by letting inflation accelerate, and we have regained a lot of credibility by bringing inflation down. Over the last 15 years, we have brought inflation down from double-digit levels. We held inflation to an average of 4 percent during th... | 327 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Mr. Chairman, I certainly support the Mack Bill. I think it may increase our credibility, and frankly I think it may have some impact on what we do around this table. In the meantime, having something like the wording that President Broaddus suggested might be useful. One never knows. It might even reduce the probabili... | 92 |
fomc | 1,996 | Vice Chairman. | 3 |
fomc | 1,996 | I would like to associate myself to an absolute degree with Ed Boehne's remarks. I believe that the degree of credibility that we enjoy at the moment has been hard earned, but it is very high. I don't know of anybody--even in the world's capital of cynics, New York City--who really believes that this Committee is not a... | 608 |
fomc | 1,996 | President Stern. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. I have some sympathy for Al Broaddus's suggestion. It would be a small step toward helping us achieve our ultimate objective, which I view as maximizing living standards. Price stability is the means that we have at our disposal to achieve that. Having said that, I think Al's suggestion, like a... | 333 |
fomc | 1,996 | President Hoenig. | 4 |
fomc | 1,996 | Mr. Chairman, I think most of the people who plan for the future try to do so with a goal in mind. They should state that goal, and I think such a statement can serve very well. I favor the idea of having a price stability goal because price stability does achieve all those objectives that we talk about. Having a state... | 237 |
fomc | 1,996 | President McTeer. | 5 |
fomc | 1,996 | I, too, believe that deeds are more important than words. However, I also believe that words are very important. Al's proposal has a lot of appeal to me. I would suggest that July might be the right time, though, to consider doing something like that. By waiting until July, we will know more about whether the Mack Bill... | 131 |
fomc | 1,996 | Governor Yellen. | 4 |
fomc | 1,996 | As I have said previously, I am quite sympa-thetic to the communications goals embodied in the Mack proposal. For the same reasons, I am attracted to many of the arguments that President Broaddus has presented, although I certainly agree with Gary Stern on the issue of credibility. I think we could proceed to communica... | 597 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | I, too, think it's important for us to communicate more about the importance of price stability as a goal, and I must say I am sympathetic to Al's proposal. I do have some caveats and concerns about the timing of implementing such a proposal. Like President McTeer and others, I am a little concerned that now may be a b... | 211 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | Mr. Chairman, I have been here only a year and five months, but I think we have discussed this question at least four or five times [Laughter] in that period. Some of the discussions have been very good, and this one clearly is in that category. Al's suggestion has some very attractive aspects to it in my view. A numbe... | 294 |
fomc | 1,996 | Let me raise the very specific issue that Governor Yellen mentioned with respect to the possible benefits of a low rate of inflation in terms of "greasing the wheels" to facilitate wage adjustments. As I recall, the staff did some work on that a couple of years ago in which the distribution of wage increases was plotte... | 177 |
fomc | 1,996 | There have been a few studies in addition to ours. We found some minimal evidence that there was some downward nominal wage rigidity. But the important empirical point we were attempting to make was that it did not appear to be quantitatively very significant. Other researchers using the same data set and other data se... | 200 |
fomc | 1,996 | Mr. Chairman, I would like to broaden this a little. We did undertake a Systemwide research effort not very long ago. I don't think there have been major breakthroughs in the economics profession in the last couple of years that would greatly change the picture. The picture was that one could not come up with definitiv... | 107 |
fomc | 1,996 | Where were their priors coming from, evidence or nonevidence? | 13 |
fomc | 1,996 | I am not talking about the priors of these researchers, which may have varied. What we found was that it was very hard to pin these things down. It was very hard to get definitive, empirical measures of the costs and benefits of varying inflation between 3 percent and, say, 1 percent as measured by the CPI. So, I don't... | 150 |
fomc | 1,996 | You mean economists are truly two-handed! Governor Yellen. | 12 |
fomc | 1,996 | On the question of the greasing-the-wheels argument, I have read the staff paper. It is a very good paper, but I think there are methodological questions that remain open and different ways of approaching it. I understand the empirical findings that you have, and I would not regard them as definitive. This is probably ... | 256 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Don, your memo about the NBER conference in January referred to the Feldstein paper as indicating that they had identified at least some benefits of going from something like 4 percent inflation to 2 percent inflation. I have not read the paper. Could you comment on whether you find that aspect of it compelling? | 62 |
fomc | 1,996 | Although I have read it, I didn't feel qualified to evaluate it. It rested very heavily on the tax system and the interaction of inflation with the way capital income is taxed and the resulting distortions to asset accumulation and savings by households through this. It was a study that was looking at welfare losses ch... | 74 |
fomc | 1,996 | Trapezoids. | 5 |
fomc | 1,996 | Right, under the curve. There were a couple of comments at the conference, as I think I indicated in my notes. One of them was by somebody who approached the subject in an entirely different way, with a general equilibrium model, and he found something that was roughly comparable to Feldstein's findings. But that was v... | 176 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | As I listened to Dave Stockton's remarks about downward wage rigidity, I was struck by how odd that sounds in the context of the last couple of years when people around this table and elsewhere have been puzzling over upward wage rigidity. Why haven't wages been rising more rapidly in the environment that we have been ... | 235 |
fomc | 1,996 | You are raising an interesting issue with respect to the most recent period. If you have downward wage rigidity in a period of falling inflation rates, one would presume that profit margins would be falling. However, profit margins are widening. Average wage increases are admittedly quite small at this stage, and there... | 421 |
fomc | 1,996 | I want to follow up on something else that Jerry Jordan said, which I thought was very good. His example referred to an announcement of an increase in the inflation rate to 5 percent. In fact, I think we went through this exercise about a year ago. The staff model did not have an announcement of an increase in the infl... | 175 |
fomc | 1,996 | I think that's true in concept. The problem, as President Stern and others have noted, is finding it in the real world. That is, when we look at sacrifice ratios across countries that have inflation targets and others that don't, we can't find an improvement there. Now, there are a lot of other things going on in those... | 167 |
fomc | 1,996 | Could it be that on the way down we are doing what we are supposed to do and on the way up we are not doing what we are supposed to do? | 33 |
fomc | 1,996 | It might be asymmetric. | 5 |
fomc | 1,996 | When we begin to test the outer limits of these models, I would hesitate to look at the output of our very sophisticated model if we ran a $500 billion deficit through that model. What would happen, I would suggest, is that the model would replicate very poorly what would be likely to occur in the real world. If you do... | 521 |
fomc | 1,996 | I call on Mr. Kohn. | 8 |
fomc | 1,996 | To accompany my briefing, I have prepared the material in front of you called "FOMC Monetary Policy Briefing." [Statement--see Appendix.] | 30 |
fomc | 1,996 | Questions for Don? Governor Lindsey. | 7 |
fomc | 1,996 | Don, you mentioned the fiscal package. If we went from a cumulative deficit of $1 trillion to zero over seven years, how big a shock do you think that would be? How should we compare that to what you have here? | 47 |
fomc | 1,996 | There is a footnote in the Bluebook that says that going from a deficit of about 2 percent of GDP, which is approximately where we are, to a balanced budget over seven years would produce a change of about 1 percentage point in the equilibrium rate in our model. Now, that number should be viewed with a huge standard er... | 79 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Don, you referred to the bond market vigilantes who try to correctly anticipate the Committee's actions. One thing they have been able to do is to derive indicators like the Taylor rule that seems to approximate our actions. If we follow an opportunistic strategy, doesn't it imply a much more complicated mathematical e... | 96 |
fomc | 1,996 | I am not sure, President Parry. I agree that at least in concept putting out a mathematically precise rule would be clearer than something as vague as an opportunistic strategy. But I think that in practice the market has come to understand, as a few members such as President Boehne already have said today, that the Co... | 223 |
fomc | 1,996 | If I could just have a follow-up question: I assume that under both strategies you have a linear Phillips curve, and therefore the output loss is the same under each. What is different is the time period, or point in history, in which you incur the output loss. | 55 |
fomc | 1,996 | For the same set of shocks hitting the economy, the output loss relative to no disinflation is the same. | 23 |
fomc | 1,996 | Some people may have gotten the impression that one strategy is less painful than the other. The pain is equal; the question is when you actually sustain it. Is that correct? | 35 |
fomc | 1,996 | In a linear world that would be correct, and that is true in this model. I don't think the Committee has behaved that way, and many models suggest that the output loss is not totally linear. In such models, large misses and large variations in output are weighted relatively more heavily than small variations in output.... | 177 |
fomc | 1,996 | That is what we talked about earlier. | 8 |
fomc | 1,996 | Right. It is a question of how the economy adapts and how the institutions in the economy adapt. I think there are reasons to believe that going to price stability slowly and allowing institutions to adapt to lower and lower inflation rates would remove some of the frictions one might worry about, say, in the financial... | 129 |
fomc | 1,996 | Further questions for Don? If not, let me start off. I will try not to be as verbose as I was at the last meeting, but I think there are certain points that require some repetition. First, it is hard to find in economic history a recession that began while the stock market was still taking off and earnings expectations... | 1,668 |
fomc | 1,996 | I want to comment at somewhat greater length than usual because I seem to be constantly putting myself in positions that are at odds with one another. I think that 3 percent inflation or lower is a very good long-run target for this group. My operative definition of price stability is stability at low rates. I would ta... | 406 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | In our discussions around the table, we talk on occasion about our ignorance, about how little we know about a lot of things such as lags, instrument variables, and so on. But at times I am impressed by the collective judgment of this group in assessing what is going on in the economy and knowing how to make the policy... | 670 |
fomc | 1,996 | Vice Chairman. | 3 |
fomc | 1,996 | Mr. Chairman, I support the recommendation of alternative A, symmetric, for the reasons that you gave. I also found Jerry Jordan's intervention just now quite convincing as well. | 35 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Mr. Chairman, I would not favor reducing the federal funds rate. I would refer to President Boehne's comment about our deeds speaking more loudly than our words. If you look at the members' economic projections for 1996, we are saying in effect that we are at potential. The midpoint of the central tendency of the Commi... | 298 |
fomc | 1,996 | President Hoenig. | 4 |
fomc | 1,996 | Mr. Chairman, I would prefer not to move at this time. We have an economy that is growing at about potential. There are continued inflationary pressures. They are not strong pressures, but I think we will be making little or no progress on inflation. I realize we are long into this expansion, but there is also a lot of... | 125 |
fomc | 1,996 | President Boehne. | 5 |
fomc | 1,996 | One of the major reasons why monetary policy has been successful in recent years is that it has had a forward-looking approach to it. Forward-looking monetary policy means that we have to peer into the future, and I don't know anybody who can do that with 20/20 vision. There is always some mist out there through which ... | 180 |
fomc | 1,996 | President Broaddus. | 5 |
fomc | 1,996 | Mr. Chairman, the policy call this morning is a very close one. There is certainly a case for easing policy and you have made it. But I come out, probably not surprisingly, much closer to Cathy Minehan and Bob Parry. Cathy in particular expressed very clearly and eloquently in our earlier discussion the kind of thing I... | 282 |
fomc | 1,996 | President Stern. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. The current situation gives me some considerable pause. As I try to look at the real interest rate situation, Charts 4 and 5 in the "Financial Indicators" package don't suggest to me that real rates are particularly high, at least relative to history. There may be an opportunity here, were we t... | 257 |
fomc | 1,996 | President Guynn. | 4 |
fomc | 1,996 | Thank you, Mr. Chairman. Like others around the table, I would not like to see us step back from our tough, long-term stance against inflation. I would not support a further easing at this time unless the risks were quite clearly on the side of further weakening in economic growth or we judge that we have a much more f... | 246 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | I support an easing of 25 basis points with a symmetric directive. I think it is important to take out some insurance against the downside risks. I am a bit more optimistic than the staff forecast that we can continue to see some progress on inflation. In addition, based on a fairly flat yield curve, I continue to thin... | 97 |
fomc | 1,996 | Governor Lindsey. | 3 |
fomc | 1,996 | Mr. Chairman, last year I was predicting that we would see a very substantial change in the stance of fiscal policy. I was wrong. That has been the big surprise to me since the last meeting. Three weeks ago I was betting that today we would see a long bond rate on the order of 6.50 percent because it seemed to me that ... | 214 |
fomc | 1,996 | The do-si-do! | 5 |
fomc | 1,996 | Or the do-si-do. I think the market perceived that near-term economic conditions were deteriorating rather dramatically. It is probably true that that is happening. As I have said, conditions in various sectors of the economy are much worse than we thought, and that is what the market was seeing. Hence, what I would no... | 284 |
fomc | 1,996 | President McTeer. | 5 |
fomc | 1,996 | The other day Ed Yardini, in one of his newsletters, said that we were going to be cutting interest rates this year--either early in the year to head off a recession or later in the year to try to bring the economy out of one. The first alternative seems much more desirable to me. I believe that the risks are very unba... | 231 |
fomc | 1,996 | President Melzer. | 4 |
fomc | 1,996 | Where is a vote when you need it? [Laughter] | 13 |
fomc | 1,996 | I know how you feel, Tom! | 8 |
fomc | 1,996 | Like Cathy, I would favor alternative B. I would favor it strongly. One of the factors is the Greenbook forecast of rising inflationary pressures in the consumer price arena and also in labor markets and that is consistent with some of the anecdotal evidence. Nobody has mentioned it, but we have had PPI increases of 0.... | 444 |
fomc | 1,996 | Governor Yellen. | 4 |
fomc | 1,996 | Mr. Chairman, I support your proposal and I agree with your assessment of the risks. As I have argued, I do think some further adjustment is needed to achieve that elusive neutral monetary policy. From my perspective, in spite of the fact that we did make downward adjustments in the funds rate in July and December, all... | 426 |
fomc | 1,996 | Governor Kelley. | 3 |
fomc | 1,996 | Mr. Chairman, I agree with those who feel that the economy is probably all right, but I also think that the downside risks clearly are elevated. I also believe that it is quite likely that the equilibrium federal funds rate is lower than it was earlier. Consequently, a somewhat lower rate is not inconsistent with what ... | 112 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | Mr. Chairman, I would wait. It's interesting that the three M's on this side of the table who voted at the last meeting would all come out the other way this time. | 37 |
fomc | 1,996 | We used to vote! | 5 |
fomc | 1,996 | My reason is that we are forecasting the economy to be at potential output. There is a lot of uncertainty. A lot of questions are being raised about the short-term outlook, and we have talked about these. I don't think anyone knows for sure why the expansion has slowed, whether it is the Federal government shutdown or ... | 312 |
fomc | 1,996 | Let's have a vote on a 25 basis-point reduction, symmetric. Would you read the appropriate language? | 21 |
fomc | 1,996 | With a reference to the discount rate? | 8 |
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