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fomc | 1,996 | I would like to concur with what several of you said regarding a telephone consultation. If events in the intermeeting period differ significantly from what we now expect, then certainly we ought to be talking on the telephone to see what, if anything, we want to do then. Governor Kelley. | 57 |
fomc | 1,996 | Mr. Chairman, as I said a little earlier, I think we are approaching but are not quite yet at a watershed, and as a consequence I don't have a view at this point concerning what way the water is going to flow when it flows. Clearly, there has been a shifting of the risks to the up side. On the other hand, it is a clear... | 240 |
fomc | 1,996 | President McTeer. | 5 |
fomc | 1,996 | Long-term rates are up substantially and the dollar is up a little, so we already have had some tightening in a sense. Don and, I believe, Al Broaddus said that a tightening of the fed funds target right now is unlikely to affect long-term rates the way such a tightening did in early 1994. I agree with that, but we did... | 196 |
fomc | 1,996 | Governor Yellen. | 4 |
fomc | 1,996 | Mr. Chairman, I support your recommendation for "B," symmetric. My preferred policy as this stage is cautious inaction. I guess that's called "watchful waiting." As I indicated in my earlier comments, the current level of long-bond rates and the stronger dollar seem sufficient to me at this stage to contain the evident... | 457 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | "B," symmetric. Although I believe that the risks have moved toward higher inflation, I do think that long-term rates are exerting some restraint. I would go with symmetry because if we were to make a change, it would be a change in direction, and I think a phone call would be appropriate. | 61 |
fomc | 1,996 | Governor Lindsey. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. I listened very carefully to your argument regarding the downward pressure that is now being put on prices. The model that crept into my head was what I will call the secular versus the cyclical factors. There are some secular changes occurring in the economy such as a decline in unionization a... | 673 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | It's a very close call, Mr. Chairman. I was in the group that did not favor a reduction in January, but I don't necessarily conclude that that means we should reverse that move today. I think the risks are clearly on the up side for output relative to potential. We all have expressed concerns about the inflation outloo... | 374 |
fomc | 1,996 | President Guynn. | 4 |
fomc | 1,996 | Mr. Chairman, I support your recommendation for alternative B, and for the reasons that Ed Boehne articulated I, too, would prefer a symmetrical directive. Being last or near last to speak, I won't repeat all the arguments that already have been made. One of the things that got a good bit of discussion in the earlier g... | 357 |
fomc | 1,996 | Thank you. You were the last speaker. The consensus of voting members is clearly "B," symmetric, and our secretary will read the appropriate directive. | 30 |
fomc | 1,996 | The draft wording for the operational paragraph 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 econom... | 113 |
fomc | 1,996 | Call the roll. | 4 |
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 | We will now return to Don Kohn's query. Do you just want to give a short summary so people can respond to it? | 27 |
fomc | 1,996 | I was thinking about the upcoming July meeting and recalling the Committee's discussion in February about paying a little more attention to its long-run objectives, in particular its inflation objectives. Taking into account speeches such as the one that Vice Chairman McDonough made on this subject, it struck me that i... | 303 |
fomc | 1,996 | Can I just amend that slightly? I think you also would want the 1997 forecast on the same basis. | 23 |
fomc | 1,996 | Well, the members have to submit 1996 and 1997 forecasts in July 1996. | 21 |
fomc | 1,996 | What I am trying to get at is that I don't think we want a 1998 number unless it reflects a desired outcome achieved through an appropriate policy. If you have a 1998 number that is the result of your individual policy, it also would be useful to have a forecast of 1996, 1997, 1998 on the same basis. That would highlig... | 96 |
fomc | 1,996 | That has always been an ambiguous issue and one that I think has produced some confusion in the past when the Committee has discussed an extension of its projections. When you are asked for your 1996 and 1997 forecasts, you are asked to make your own assumptions about monetary policy. | 57 |
fomc | 1,996 | They are assumptions of what the members think monetary policy will be, not what they would like it to be. | 22 |
fomc | 1,996 | No, we have asked the members to base their projections on what they think an optimal policy should be. | 21 |
fomc | 1,996 | How would you differentiate between the current projection and the new one? | 13 |
fomc | 1,996 | When you are projecting 1996 and 1997, obviously much of what is going to happen, even if you were to run your optimal monetary policy, has already been "baked in the cake," given the ongoing trends in the economy. It seems to me that by the time you get to 1998, you have had enough time to adjust your individual monet... | 86 |
fomc | 1,996 | That's clear enough. | 4 |
fomc | 1,996 | I find the distinction a little awkward myself, having dealt with these numbers. What I have always found strange was that no one changed the numbers after the discussion at the meeting, which may have given people a clearer impression of what the Committee was up to. But the numbers stood as they were, presumably as n... | 142 |
fomc | 1,996 | But how are the numbers characterized in the Humphrey-Hawkins testimony? My recollection is that they are characterized as what the FOMC expects to happen. | 33 |
fomc | 1,996 | Pretty much. | 3 |
fomc | 1,996 | We indicate that they are consistent with the monetary ranges that the Committee selected and so on. So, they presumably are based on some policy plan. That is what the Humphrey-Hawkins Act calls for. | 42 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | Don, when you use the word "forecast," you immediately put me off because it is inconsistent with saying "goals and objectives." In principle, of course, I think we ought to provide numbers to indicate what we are trying to achieve in 1998 and beyond in order to maintain the purchasing power of the dollar. It is simply... | 534 |
fomc | 1,996 | President Jordan, I figured that that was what your GDP forecast would embody. Are you asking the staff to take each of the members' forecasts and rationalize them in terms of productivity? | 37 |
fomc | 1,996 | Not each one. | 4 |
fomc | 1,996 | Each of you would have a different model and different relationships. | 12 |
fomc | 1,996 | No, but you could do it in terms of a range. We are not talking about a GDP forecast. The question is how much would productivity and capacity have to increase over and above what you have in your assumption to be consistent with moving toward 2 percent inflation--whatever unemployment rate falls out of that, perhaps a... | 146 |
fomc | 1,996 | Two points, President Jordan. First, I think I tried to emphasize in my earlier comments that your 1998 forecasts or goals would not be published for at least five years, unless you decided otherwise. Secondly, I think it might be useful if you chose to submit written notes to explain how you arrived at a particular co... | 92 |
fomc | 1,996 | I think the storm is really moving in. Maybe it would be wise for us to continue this meeting after lunch. We will still be in the meeting until we finish this agenda item. Let us take a temporary break so that everyone can get lunch. Then, when everyone is back, we will continue our discussion. [Lunch break] | 67 |
fomc | 1,996 | President Melzer. | 4 |
fomc | 1,996 | Thanks, Alan. I was amused when Don brought this topic up because I was going to suggest something like this, as I and others have done in the past. It is a good suggestion in that it represents a starting point for a dialogue about an issue that we need to talk about as a Committee. I would view it just as a starting ... | 387 |
fomc | 1,996 | Vice Chairman. | 3 |
fomc | 1,996 | Mr. Chairman, I share Don's ultimate goal, but I do not think that his recommendation is a helpful way to get there. I believe that the appropriate goal of monetary policy is price stability and price stability only. I further believe that at some stage we have to define price stability and that the best way for people... | 307 |
fomc | 1,996 | Are you suggesting 1996 and 1997 and 2000? | 15 |
fomc | 1,996 | No, I would say that, if we wanted to do this and we had had the debate beforehand, we would say the rest of 1996, 1997, 1998, and 1999. | 44 |
fomc | 1,996 | What I am trying to say is that if you are looking for an extended period what you want to do is to eliminate part of the projection. | 29 |
fomc | 1,996 | Yes, correct. | 4 |
fomc | 1,996 | So it could be 1996, 1997, 1999 if you wanted to do it that way. | 24 |
fomc | 1,996 | That's right, exactly. | 5 |
fomc | 1,996 | I don't know how you get from your last forecast to your ultimate goal, but it's left a blank because that is where the most difficult transition questions are, and at this point it would obscure the ultimate goal to fill in that blank. | 47 |
fomc | 1,996 | You made what I was thinking infinitely more clear. Thank you. | 13 |
fomc | 1,996 | I did? [Laughter] President Hoenig. | 11 |
fomc | 1,996 | Mr. Chairman, I will repeat a little of what Bill just said. We have a goal for inflation and maybe we should define more clearly what we mean by price stability in the long term. Our discussion so far today has shown the difficulty of putting that in 1998 terms. We would spend a lot of time discussing whether we have ... | 121 |
fomc | 1,996 | Governor Lindsey. | 3 |
fomc | 1,996 | I think I am an opportunist. I am proud of being an opportunist, but the thing I don't know is when the opportunity is going to present itself. We are not going to induce a recession, but we know the business cycle is going to produce one. When it does, then inflation will come down. I don't know if that will occur one... | 111 |
fomc | 1,996 | Governor Yellen. | 4 |
fomc | 1,996 | I agree with Governor Lindsey. I think this is a discussion that we definitely need to have to clarify what we mean by price stability and what strategy we have in mind to get there. I am also concerned, especially given my interest in an opportunistic strategy, that it would be awfully hard to fill in the boxes relati... | 110 |
fomc | 1,996 | Governor Kelley. | 3 |
fomc | 1,996 | Mr. Chairman, I would like to associate myself with Governor Lindsey and Governor Yellen as an opportunist. I think there are a couple of other problems with this exercise. When we are looking ahead in terms of an expected result, that is a forecast. We come out with a point estimate forecast for that period in time. I... | 347 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | I agree that we have to clarify the difference between a forecast and a goal, and for that reason I agree with Governor Yellen that the further out we go in time, probably the better because I think it will be clearer that we are talking about a goal. But Mike Kelley also made the point, which obviously is a very impor... | 156 |
fomc | 1,996 | President Stern. | 3 |
fomc | 1,996 | This is an idea that we ought to pursue. I don't know if Don's suggestion is optimal, but we have to start somewhere. I also think that we need to start with at least some structure. In this case I don't think it's critical whether we use a 1998-type goal or push the goal out a little in time. We have to start with som... | 246 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | I don't have any disagreement with what Don is recommending, and I think it can be done in terms of what one sets as a policy objective for a year like 1998. We use policy rules at the San Francisco Bank. We have some idea about what we think price stability means, and I think we would be able to do what Don is proposi... | 148 |
fomc | 1,996 | Would anyone else like to add to this discussion? | 10 |
fomc | 1,996 | I agree with Gary Stern. I think this is a nice initiative. In my view, it's very important to start somewhere, and I am very glad that Don has suggested this and put it on the table. I also agree with some of the other comments, though, in the sense that I think focusing in a fairly unstructured way on 1998 is not the... | 304 |
fomc | 1,996 | President Minehan. | 4 |
fomc | 1,996 | There was a wonderful quote by Ed Boehne in the research paper that we got on opportunistic strategies. It went along these lines: Well, we are where we are; sooner or later we will have a recession; we don't want a recession; but if we can work things in a way that takes advantage of the inroads that we have made agai... | 368 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | I agree with President Minehan. I think it will be useful to have the discussion. I generally prefer an open-ended, longer horizon for a goal, but starting the discussion is what is important. We need to have some kind of discussion about what price stability means and what time horizon we are talking about, and if wha... | 107 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | I hope that we can have two discussions. I would set aside the question of strategy and discuss it sometime later because I think the two different approaches to strategy raise a lot of other issues. So, confining the discussion to our goals and objectives and the time period for achieving them would be very useful. | 61 |
fomc | 1,996 | President Boehne. | 5 |
fomc | 1,996 | I think the discussion would be quite useful. But starting it with a number doesn't strike me as the way to do it. We ought to have a broader discussion on the issue of price stability, what we mean by it, and how we can get there. I think that if we have the substantive discussion, then numbers will fall out. But if w... | 117 |
fomc | 1,996 | Does anyone have anything to add? President McTeer. | 12 |
fomc | 1,996 | I'll use my turn to compliment the chef on these cookies! [Laughter] | 16 |
fomc | 1,996 | That was the definitive end-of-meeting remark! I'll remind you that our next meeting is on July 2 and 3 and if events require, we will meet sooner by telephone communication. Hopefully, at some point we will have a broader telecommunications capability, but at the moment we are limited to telephone communications. | 62 |
fomc | 1,996 | Mr. Chairman, we were hoping even before we had this discussion that we would perhaps have time at the July meeting--probably at the end of the meeting--to discuss the swaps issue, which we have kept pushing off. Hopefully, we will have a full Board by then, but who knows. We were thinking of starting that meeting earl... | 97 |
fomc | 1,996 | All the major unresolved issues of monetary policy in one meeting? Swaps and price stability? | 18 |
fomc | 1,996 | Does anybody have a problem with 1:00 p.m.? [Secretary's note: No member indicated a scheduling conflict.] | 25 |
fomc | 1,996 | Let's now end this meeting. | 6 |
fomc | 1,996 | I would like to welcome Governors Rivlin and Meyer to their first exposure to this Committee. I also would like to welcome Helen Holcomb, who is First Vice President of the Dallas Bank, to her first meeting. I hesitate to welcome, but I have no choice after we approve the minutes, our friend over there. Would someone l... | 79 |
fomc | 1,996 | Without objection. Peter, I was referring to you a moment ago. [Laughter] You are on. | 22 |
fomc | 1,996 | I will be referring to the package of charts that was just distributed. [Statement--see Appendix.] | 20 |
fomc | 1,996 | These are very interesting charts. I am a little puzzled by the implicit theoretical construction in the charts showing the relationship between implied volatilities on currency options and exchange rates. I would not have a problem if you were endeavoring to evaluate a market price for stocks, bonds, tomatoes, or what... | 130 |
fomc | 1,996 | A change in the dollar. I tried to be careful. If you look at those two charts, they tend to suggest a random walk in the relationship between increased volatility and the direction the dollar will go, but in the last few years the direction has been toward a weaker dollar. | 56 |
fomc | 1,996 | What I have to say has nothing to do with your statement! [Laughter] I am a little puzzled in the sense that whatever the theoretical construction there is for the dollar, it has to be exactly the opposite for the deutsche mark. I am curious as to how you explain the fact that you are getting this type of relationship ... | 112 |
fomc | 1,996 | Well, I am not going to be able to answer that at the theoretical level for the long sweep of history. The data show that it is in the last couple of years that the market has had a bias in favor of the mark; when volatility pops, it is the dollar that weakens. The point is that it ought to be a random walk as to which... | 187 |
fomc | 1,996 | Theoretically, in exchange transactions all technical factors should be neutral. To the extent they are not neutral, then we have only net long positions in some particular security, or claim, or something of that nature. I am really puzzled that we can construct something like this. I don't deny the relationship, but ... | 114 |
fomc | 1,996 | I think I have both a degree of curiosity and, given the history of the last few years, a point of concern about the level of options being written. | 32 |
fomc | 1,996 | You should think about that. This is an interesting set of relationships, but I am not sure what to make of it. As I said, I am curious. Governor Lindsey. | 36 |
fomc | 1,996 | I share your concern. I am a little worried about what we may be seeing. I had thought about this a little differently. It would seem that this autumn is going to be an interesting period, particularly among European currencies. What is motivating banks to write options, to bet on continuing low volatility in the excha... | 97 |
fomc | 1,996 | The incentive that is most evident to me is that they can't make money through normal channels. | 18 |
fomc | 1,996 | They can't make money the old-fashioned way! | 9 |
fomc | 1,996 | They now are subject to a rather disciplined approach to income targets that are set in terms of the level of income they are supposed to achieve month by month. I am not saying that is a pretty sight. | 41 |
fomc | 1,996 | So, we are back in the incentive-structure problem? | 12 |
fomc | 1,996 | I think in the short run, yes, that is a big part of it. | 17 |
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