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fomc | 1,996 | Governor Kelley. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. It seems to me that economic activity is tracking along the Greenbook path about as we had expected and hoped. I want to associate myself particularly with Ed Boehne's comment that the remarkable resilience of this economy has been the most interesting development recently. This certainly is no... | 245 |
fomc | 1,996 | Governor Yellen. | 4 |
fomc | 1,996 | Thank you, Mr. Chairman. The progress of the economy over the last several months has been reminiscent of "the perils of Pauline," with blizzards, government shutdowns, threats of default on the national debt, strikes, and a frightening albeit brief dive in the stock market threatening the progress of our heroine. Neve... | 454 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. The fog has lifted somewhat since our January FOMC meeting, and perhaps we are now operating only in patches of fog. I continue to believe that it will be well into the second quarter before we have a clear picture of what happened even in the fourth quarter, let alone the first quarter of this... | 1,016 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | The Fourth District is in between Ed Boehne's and Mike Moskow's Districts, but so much for geography. It is hard to get a reading not only on what is actually happening but on what is expected in our area for this year and the year ahead--the time horizon that is relevant for policy discussions--especially when the nat... | 1,119 |
fomc | 1,996 | Governor Lindsey. | 3 |
fomc | 1,996 | I think the change in the data, the closing of the government, and the snow have allowed us to forget there are still three unresolved issues in the economy. The first I would call the labor market/household sector issue. I think the story is that we can't go on like this, but I do not know how it will change. The anec... | 785 |
fomc | 1,996 | Thank you. Coffee should be out there. Would someone take a quick look and see whether it is there? | 22 |
fomc | 1,996 | We really just finished breakfast! | 6 |
fomc | 1,996 | We must be in great shape if we are having a break at 9:30 a.m.! | 20 |
fomc | 1,996 | They are setting up, but it will take a few more minutes. | 14 |
fomc | 1,996 | Corporate planning is less than adequate. [Laughter] Don Kohn. | 15 |
fomc | 1,996 | We will have a race between my briefing and the setup for the coffee. I'll talk fast and maybe I can win! As background for your policy discussion, I thought it might be useful to take a closer look at a key development in financial markets over the intermeeting period, the rise in long-term interest rates that a numbe... | 76 |
fomc | 1,996 | Thank you. Why don't we break for coffee? | 10 |
fomc | 1,996 | Let me get started. In a period like this, it may be a good idea to review history to see how we got to where we are. At the moment, the economy might be described by an electrocardiogram that does not say the economy is dead but indicates it is functioning in a way that suggests something is going to move--as a number... | 1,168 |
fomc | 1,996 | The premium isn't fixed in this case; that is the difference. | 13 |
fomc | 1,996 | Let's not get into insurance policies! [Laughter] More generally, to confront the problems that we face, we have to ask ourselves what can change. Two issues have surfaced in the discussion around this table that, I think, are quite to the point. One is whether we are going to be looking at increased labor militancy. T... | 803 |
fomc | 1,996 | Symmetry? | 3 |
fomc | 1,996 | An obvious symmetry. Vice Chairman. | 7 |
fomc | 1,996 | Mr. Chairman, I support the "B" symmetric proposal. I agree that the most likely forecast is the one that we all agreed on, and I think it also is highly unlikely that it will materialize. We will have to adjust one way or the other and stay extremely wary and ready to move in the interim. But certainly for now, the "B... | 81 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Mr. Chairman, much of the evidence that we have received since the last meeting suggests that economic activity has strengthened, as the gains in February have more than made up for the weakness in January. Even with the GM strike this month, it now appears that there will be a marked pickup in real growth in the curre... | 192 |
fomc | 1,996 | President Melzer. | 4 |
fomc | 1,996 | Alan, I agree with your recommendation. I have some concerns, obviously, based on what I have said before. It is difficult to evaluate the stance of policy, but I am concerned that it may not even be neutral at this stage--just based on what is happening, for example, with monetary growth rates and some of the factors ... | 333 |
fomc | 1,996 | President Broaddus. | 5 |
fomc | 1,996 | Mr. Chairman, as others have said, we often evaluate the economy and the outlook in terms of risks and how they are balanced. It would certainly seem that there has been some change in the balance of risks away from the downside risks toward upside risks. I don't know whether we want to call it insurance or whatever, b... | 274 |
fomc | 1,996 | President Boehne. | 5 |
fomc | 1,996 | I agree with your recommendation, Mr. Chairman. | 10 |
fomc | 1,996 | President Minehan. | 4 |
fomc | 1,996 | I also agree with your recommendation, Mr. Chairman. I would like to reflect a little on your comments about reaching the end of the business cycle expansion sooner or later. Obviously, that will happen. The concern I would have is that we might experience a pattern somewhat like the late 1980s when prior to the end of... | 168 |
fomc | 1,996 | President McTeer. | 5 |
fomc | 1,996 | I agree with your recommendation. | 6 |
fomc | 1,996 | President Stern. | 3 |
fomc | 1,996 | I, too, support your recommendation. | 8 |
fomc | 1,996 | Governor Lindsey. | 3 |
fomc | 1,996 | I agree with your recommendation. | 6 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | I agree with your recommendation. | 6 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | I agree with leaving the federal funds rate at 5-1/4 percent at the present time. But in the context of Al Broaddus's suggestion about monitoring the incoming information and deciding what to do in the future, I think we need to think more about what the yield curve is telling us and try to reach some consensus about i... | 332 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | I agree with your suggestion. It seems to me that the need for additional insurance is less pronounced. The cost is now simply too high relative to the risk. The economy is moving forward, and it does not appear to need our help at this time. I can well imagine that our next move could be either up or down. | 66 |
fomc | 1,996 | Governor Yellen. | 4 |
fomc | 1,996 | Mr. Chairman, I agree with your proposal and I also agree with your assessment of the key risks. | 21 |
fomc | 1,996 | Governor Kelley. | 3 |
fomc | 1,996 | I concur with your recommendation, Mr. Chairman. | 10 |
fomc | 1,996 | President Guynn. | 4 |
fomc | 1,996 | I concur with your recommendation as well. | 8 |
fomc | 1,996 | President Hoenig. | 4 |
fomc | 1,996 | I agree with your recommendation. | 6 |
fomc | 1,996 | Would you read the symmetric directive? | 7 |
fomc | 1,996 | The directive wording is on page 13 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 care... | 109 |
fomc | 1,996 | Would you call the roll? | 6 |
fomc | 1,996 | Chairman Greenspan Yes Vice Chairman McDonough Yes President Boehne Yes President Jordan Yes Governor Kelley Yes Governor Lindsey Yes President McTeer Yes Governor Phillips Yes President Stern Yes Governor Yellen Yes | 40 |
fomc | 1,996 | The next meeting is on May 21. We took out an hour's worth of insurance this morning. [Laughter] It turned out that we did not need it. I don't know whether you consider that too high or too low a price. [Laughter] | 54 |
fomc | 1,996 | The risks were definitely up. | 6 |
fomc | 1,996 | Thank you all for trying to confine your remarks to a shorter time frame than usual. We probably will be going up to the Hill in about an hour and we'll see what happens there. In the interim, we have lunch scheduled at 11:30. Joe Coyne is going to announce at 11:30, 11:45, or something like that we have nothing to an... | 92 |
fomc | 1,996 | Good morning, everyone. First, I would like to acknowledge the fact that this is the first meeting for First Vice President LeGrand Rives of the St. Louis Bank, Senior Vice President Robert Eisenbeis of the Atlanta Bank, and Pauline Chen of the New York Desk. I would like to welcome all of you and request that the rest... | 81 |
fomc | 1,996 | So move. | 3 |
fomc | 1,996 | So move. | 3 |
fomc | 1,996 | Without objection. Peter Fisher. | 6 |
fomc | 1,996 | Thank you. [Statement--see Appendix.] | 9 |
fomc | 1,996 | Questions for Peter? If not, would somebody like to move ratification of the Domestic Desk operations? | 20 |
fomc | 1,996 | Move approval. | 3 |
fomc | 1,996 | Second. | 2 |
fomc | 1,996 | Without objection. I will call on Messrs. Prell and Truman at what has to be the earliest possible time that this has occurred. | 28 |
fomc | 1,996 | Except when the Committee started the meeting at 8:00 in the morning. | 16 |
fomc | 1,996 | You always throw a monkey wrench into the works! | 10 |
fomc | 1,996 | People have said that. [Laughter] [Statement--see Appendix.] | 15 |
fomc | 1,996 | [Statement--see Appendix.] | 6 |
fomc | 1,996 | Questions for either gentleman? | 5 |
fomc | 1,996 | Mike, the core rate of inflation in the forecast increases 1/2 percentage point between the first quarter of this year and the fourth quarter of next year. If one were to assume an unchanged policy and to extrapolate that out into 1998, what do you think would happen to core inflation in 1998? | 65 |
fomc | 1,996 | In 1998, economic growth would remain essentially around trend and the unemployment rate around 5-1/2 percent. Our judgment is that the core inflation rate is tending to rise gradually and perhaps it would continue to do so in 1998. We do not think that we are far beyond the NAIRU, and that would mean a very gradual tr... | 80 |
fomc | 1,996 | You have a fairly large increase forecast for 1996 and 1997. | 16 |
fomc | 1,996 | There are some exacerbating factors, as I emphasized in my briefing, and those are areas where the uncertainties are substantial. But as we looked at the probability distribution in light of developments since the last Greenbook, we felt that we ought to assign a higher expected value to the levels of grain and food pr... | 74 |
fomc | 1,996 | What is the timeframe that you assume exists between the increase in grain prices and its effects on poultry, hog, and cattle prices? I will assume that it is in that order of lead times. | 39 |
fomc | 1,996 | We noted in the Greenbook that we do not feel that we can pin that down with any certainty. I think we are already seeing this transmission process affecting the poultry area where producers are cutting back on their production levels, and we expect to see a price pass-through there fairly promptly. | 57 |
fomc | 1,996 | Can't you tell from the futures prices? | 8 |
fomc | 1,996 | We have looked at the futures prices and-- | 9 |
fomc | 1,996 | Don't they tell you what average lead times are or can be assumed to be? | 16 |
fomc | 1,996 | Mr. Chairman, our forecast shows an expectation of higher poultry prices showing through to the retail level more fully by the summer. By late fall or early winter, we would expect to see the higher hog prices show up as increased pork prices in grocery stores. Higher cattle prices would show up early next year. | 61 |
fomc | 1,996 | That is what I was going to say--that you can make an assumption. | 16 |
fomc | 1,996 | We are making assumptions, but there are no guarantees. Certainly, it is our perception that things have started to turn in the cattle area. Whereas, a couple of months ago, we saw the risks that herds would be cut back, the anecdotal evidence suggests that this process is now under way. So, we feel more certain that t... | 79 |
fomc | 1,996 | Governor Lindsey. Mr. LINDSEY. Mike, my first question is, do we have any evidence yet on how households have financed higher gasoline prices? The increases per month amount to about $10 per car or $20 per household. Is that coming out of savings or out of other consumption? | 61 |
fomc | 1,996 | I guess our assumption is that it would probably come out of savings to some degree in the short run. Over time, we would expect people to reallocate their spending and to absorb that elsewhere. But in the very short run, there probably would be some inelasticity. It would not be a one-for-one substitution for other ex... | 68 |
fomc | 1,996 | The move in oil prices in the futures market suggests that the market has changed its expectations toward higher prices going quite a ways out. If you just look at the inventory balances held by the majors, which are now at record lows, why do you think we are going to see a decline in oil prices? | 61 |
fomc | 1,996 | There is still an anticipation in the market that oil prices will decline. What happened yesterday, though, is that prices in near-term contracts jumped dramatically after their initial drop. The market reports talked about the closing out of near-term contracts, some short covering, and so on. As we read most of the c... | 144 |
fomc | 1,996 | What is the average price in your underlying assumption? | 10 |
fomc | 1,996 | We are forecasting a decline in oil import prices to $17 per barrel and in WTI spot prices to around $19.50 per barrel; that is down a couple of dollars from current levels. Our forecast did not assume an Iraqi oil decision at this time, but it did assume that we would get essentially the same amount of oil in 1997, so... | 208 |
fomc | 1,996 | You are saying that Iraqi oil exports won't exceed 700,000 barrels per day in this period? | 20 |
fomc | 1,996 | That's right. The probability that it will be 2 million barrels has gone down even as the probability of 700,000 barrels has gone up. | 30 |
fomc | 1,996 | In terms of our CPI forecast, if we assume that the price of oil declines a little faster, the contour of the forecast changes in that we have a little less inflation this year than next year. But at this point, we need to monitor what is happening in the markets. | 56 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | Mike, I want to go back to grain prices. One trend of which we are aware is that the percentage of processed food costs that stem from their grain content has come down--quite markedly, actually, over the last twenty years. I was wondering whether the econometric models that we use take that into account and also what ... | 96 |
fomc | 1,996 | We are well aware of the calculations that show how the grain in a loaf of bread accounts for just a few cents of its cost. There has been an increase in packaging and distribution costs so that there is less sensitivity to changes in grain prices than in the past. The big kicker here is the meat price story, and there... | 149 |
fomc | 1,996 | Isn't that inflationary effect related only to feed grain prices? The amount of wheat that is used for feed grains is very small, and as we know breakfast cereal prices went down as the price of wheat went up. | 44 |
fomc | 1,996 | Perhaps. I think we need to see what happens with cereal coupons and all of that business. | 19 |
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