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fomc | 1,996 | I would have to say that I am not very confident about any of those measures. There is a band of uncertainty around them all. I do think that, as Mike Prell has commented--and I think Governor Meyer said this yesterday as well--there used to be more confidence about the NAIRU calculation. In Mike's chart yesterday, we ... | 380 |
fomc | 1,996 | What about your assumption regarding the real fed funds rate? | 11 |
fomc | 1,996 | Once again, I think the assumption about where the equilibrium fed funds rate is situated is very shaky. When we look at history, we have to conclude that things move around, other things are not equal, the equilibrium real fed funds rate varies, and as I said in my briefing, that sort of exercise is at best only a sta... | 83 |
fomc | 1,996 | You have made me feel a lot more confident! [Laughter] | 14 |
fomc | 1,996 | President Hoenig. | 4 |
fomc | 1,996 | Don, I want to follow up on your reference to financial markets in terms of policy actions now or later. It strikes me that there has been a fair amount of run-up and perhaps even some artificiality in some of the financial markets, such as those for IPOs or indeed whatever market you want to talk about. You indicated ... | 138 |
fomc | 1,996 | I guess that depends a bit on what you think will happen if you do not move. One hypothesis would be that, if you do not act now, in Mike's words, gravity will take over and the market will begin to correct itself even without the Federal Reserve. In that case, waiting to act might even be a positive in the sense that ... | 296 |
fomc | 1,996 | Any further questions for Don? If not, let me hold forth for a little longer than usual because I think, as Governor Kelley indicated yesterday, that we are in one of those watershed periods that requires deeper deliberation on monetary policy issues than we have had to face at many of our meetings. The current period ... | 2,074 |
fomc | 1,996 | Mr. Chairman, perhaps one of the chores that goes with being Vice Chairman is that after such a very interesting and demanding presentation, one fills the vacuum, giving other people some more time to think. [Laughter] Agreeing with Governor Kelley's remark yesterday that we are at a watershed, I found myself sitting u... | 645 |
fomc | 1,996 | President Broaddus. | 5 |
fomc | 1,996 | Mr. Chairman, I have not yet had the opportunity to read Governor Yellen's paper, which I look forward to doing, But not having read it, I am reluctant at this point to deemphasize what you refer to as the "old model." It seems to me that the information we heard yesterday suggests that the economy is currently robust,... | 420 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Mr. Chairman, news on the economy since our last meeting has strengthened my view that it would be wise to raise the federal funds rate at this time. We cut the funds rate in January because an apparent moderation in growth was reducing inflationary pressures and because we wanted to guard against the risk that the exp... | 371 |
fomc | 1,996 | President Minehan. | 4 |
fomc | 1,996 | I have not heard anybody arguing that the risks are not on the up side. I agree with the Greenbook and other forecasts that we are likely to see moderation in growth over the second half of the year. But even with that, both the Greenbook and most other forecasts see an uptick in inflation. The Greenbook sees that meas... | 823 |
fomc | 1,996 | President Hoenig. | 4 |
fomc | 1,996 | Mr. Chairman, after listening to you, I have a better sense of the difficulties in this process--the uncertainty about the model or analytical framework that we use to assess the incoming data. I also appreciate Bill McDonough's comment that we need to have the public's confidence and support. I think, though, that we ... | 235 |
fomc | 1,996 | Governor Lindsey. | 3 |
fomc | 1,996 | Mr. Chairman, yesterday I thought Governor Meyer laid out two issues very well. One of them is how GDP will grow relative to trend. Your analysis showed exactly how we would respond. If we saw a rise in inventory accumulation, to use your example, that suggested a sustained, above-trend rate of economic growth, we woul... | 165 |
fomc | 1,996 | It is just a little note. | 7 |
fomc | 1,996 | You mean it is short. | 6 |
fomc | 1,996 | With both religion and economics, we tend to be schismatic. The Episcopalians can't sing from the Presbyterian hymnbook, and that is always a problem. But let me see if I can put what has been said before in an ecumenical sense. Jim Stock had a very interesting paper earlier this year on the NAIRU in the last three dec... | 591 |
fomc | 1,996 | Governor Meyer. | 3 |
fomc | 1,996 | Mr. Chairman, while I recognize that I arrived at an interesting moment for monetary policy, I must admit nevertheless that I did not agonize over my position for the monetary policy directive for this meeting. Although it may still turn out to be a close call as to whether or not we tighten going forward and as early ... | 911 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. Based on the increased upside risks, I think that a tightening of policy is going to be needed in the next several months, but I am a bit more optimistic than the Greenbook on inflation. I am not convinced that a large increase--or a series of increases--in the federal funds rate is necessary. ... | 158 |
fomc | 1,996 | President Boehne. | 5 |
fomc | 1,996 | The future usually bears some resemblance to the past, but the future is almost always different from the past. I think we are in one of those situations now where we do not know how much different the future will be. I believe most of us feel as we talk to people in our Districts that it may be more different, at leas... | 326 |
fomc | 1,996 | Governor Rivlin. | 4 |
fomc | 1,996 | I am very comfortable with your recommendation, Mr. Chairman. It is extremely hard for us to explain the current set of facts to ourselves with the models that all of us have been using, implicitly or explicitly. I am intrigued by your construct, but very frankly none of us really knows what is happening. It seems to m... | 261 |
fomc | 1,996 | President Stern. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. I think you focused the discussion appropriately on the underlying inflationary process and on the questions of what we know or do not know about it. I certainly would admit that I do not know as much about it as I would like. The world may indeed have changed, but even so, if I understood you ... | 338 |
fomc | 1,996 | President Melzer. | 4 |
fomc | 1,996 | First of all, I think the prospect of rising inflation is the biggest risk we are facing in the economy in the coming months. There is no question in my mind about that. I also think policy is in an accommodative stance from a number of different perspectives. So, I conclude that we ought to move now, and I would be in... | 113 |
fomc | 1,996 | President Guynn. | 4 |
fomc | 1,996 | Thank you, Mr. Chairman. As I indicated in the earlier go-around, I, like most others, expect the economy to slow in the coming quarters, leaving us with a rate of growth without increasing price pressures that perhaps can be achieved with our current policy stance. I would like to give things a chance to play out a bi... | 257 |
fomc | 1,996 | Governor Kelley. | 3 |
fomc | 1,996 | Mr. Chairman, it is very correct to be suspicious of the notion that this time things have changed. That is a classic trap. It is frequently a loser's cry, and I find myself very uncomfortable supporting that notion. By conventional standards I think the case to move now is somewhere between strong and compelling. But ... | 299 |
fomc | 1,996 | President McTeer. | 5 |
fomc | 1,996 | Mr. Chairman, I can support your recommendation. I could also have supported a recommendation for tightening today, had you made it. On principle, I prefer not to tighten monetary policy on the basis of strong output and employment growth or even a low unemployment rate. I know that we should not wait to see the "white... | 141 |
fomc | 1,996 | Baptists have a point of view on this? | 11 |
fomc | 1,996 | Try to top that, Governor Yellen! | 9 |
fomc | 1,996 | I can't, Mr. Chairman! I agree with your analysis and many of you have been eloquent in expressing thoughts that I agree with: the Vice Chairman, Governor Meyer, Governor Rivlin, President McTeer, and others among you. I can certainly support the recommendation to leave the funds rate where it is with an asymmetric dir... | 352 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | Mr. Chairman, I think the risks are clearly on the up side, as we all have said. The issue is whether the rate of economic growth will slow in the second half of this year. I think that it will based on the evidence we have seen. The business people with whom I have been in contact also sense that the economy is slowin... | 298 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | I think the reasons for a change in the direction of policy have to be even more convincing than for a change in the same direction as prior moves. Our action in early 1994, which subsequently was viewed as having been correct by people on the outside, was very important in that regard. If I were as convinced as some o... | 382 |
fomc | 1,996 | I should say that there have been occasions in the past when we have gone asymmetric and withdrawn it. But the point you make is well taken. I think the broad mode of the Committee is Alternative B, asymmetric. I will ask the Secretary to read the appropriate language for that motion. | 57 |
fomc | 1,996 | This is on page 21 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 careful consideration... | 108 |
fomc | 1,996 | Would somebody like to move that? | 7 |
fomc | 1,996 | So move. | 3 |
fomc | 1,996 | Is there a second? | 5 |
fomc | 1,996 | Second. | 2 |
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 Meyer Yes Governor Phillips Yes Governor Rivlin Yes President Stern No Governor Yellen Yes | 47 |
fomc | 1,996 | I think we can break for coffee. Then we will come back to a discussion of swaps and intervention. | 21 |
fomc | 1,996 | You will recall that we twice postponed this discussion until we could be joined by our two new colleagues. That is one more reason I am delighted that they finally came on Board. The staff paper prepared by Messrs. Fisher, Kohn, and Truman raises a number of interrelated issues. Our objective today should not be to tr... | 730 |
fomc | 1,996 | Mr. Chairman, I do not have any prepared remarks, but let me make just a few comments if I may. The approach that the Federal Reserve has to foreign central banks is very much a product of the rather unusual structure of the Federal Reserve, with the Board of Governors and the 12 Reserve Banks. The Federal Reserve Bank... | 1,199 |
fomc | 1,996 | Just a couple of questions relevant to this issue: The real danger here, as you imply, is that there are numerous people who can envisage a reverse repo as an extension of credit. I can very readily see that there are certain countries with which the Federal Reserve Bank of New York might engage in a reverse repo and t... | 131 |
fomc | 1,996 | Mr. Chairman, I think that has great merit. The question is the form. Would you want a list or would you want a sense of the Committee concerning what sorts of countries might be on the list? | 42 |
fomc | 1,996 | We do not want a published list. | 8 |
fomc | 1,996 | Yes, and we do not want a leaked list or somebody trying to obtain it through a FOIA request. A list cannot be leaked or released if it does not exist. My preference would be for us to have a discussion to arrive at a sense of the Committee concerning standards. The latter might include the requirements that a country ... | 129 |
fomc | 1,996 | Perhaps they might include such a thing as the State Department's acquiescence in American citizens visiting such countries. | 22 |
fomc | 1,996 | Yes, right. | 4 |
fomc | 1,996 | President Minehan. | 4 |
fomc | 1,996 | Mr. Chairman, I would like to take advantage of your offer to discuss the broader principles bearing on this issue and to leave some of the details for a subsequent discussion. I think the fundamental question that underlies the several discussions of swaps in which I have participated is whether we believe that centra... | 718 |
fomc | 1,996 | It is a mix. It is not a replacement for the actual mechanism. It is a political replacement, if I may put it that way. | 29 |
fomc | 1,996 | Yes, it certainly seems that way. | 8 |
fomc | 1,996 | It is not belts and suspenders. One is a belt and the other is a raincoat. [Laughter] | 24 |
fomc | 1,996 | I did not use "belt and suspenders" with regard to the repo facilities. It was with regard to swaps and the accumulation of foreign exchange balances. | 31 |
fomc | 1,996 | Just remember a raincoat is anti-liquidity. [Laughter] | 15 |
fomc | 1,996 | Because we have a December deadline on approving the swap network for yet another year, my preference at this point would be to approve the swap network. I think it would be very useful for us to engage in a more thorough review of alternatives. I certainly would like to see fewer questions and more strawmen put up as ... | 198 |
fomc | 1,996 | President Hoenig. | 4 |
fomc | 1,996 | Mr. Chairman, I appreciate the breadth of this discussion and for my purposes would like to put it in a different perspective. In my view, the first issue relating to our swap lines is our attitude toward intervention. That has been the reason for their existence, why they have been maintained and renewed. My own prefe... | 418 |
fomc | 1,996 | It is. Let us emphasize that it is an issue that can be discussed on its own merits. | 20 |
fomc | 1,996 | I think we should do that over time in future meetings. | 12 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | Thank you. I thought there was a general agreement in our earlier discussions that if we did not already have swap arrangements, we would not invent them, so the question looking forward was simply one of tactics for getting rid of them. Cathy in her remarks raised some question as to whether we should invent them if w... | 590 |
fomc | 1,996 | Governor Rivlin. | 4 |
fomc | 1,996 | On a very basic level, it seems to me that we ought to welcome the respect and the leadership role that the world, as Mr. McDonough pointed out, seems very willing to accord us and we ought to work as closely as possible with the other major central banks to keep things on an even keel and avoid financial crises. For t... | 487 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | I think the history of the swap arrangements since the early 1980s indicates that there is no need for them. Somewhat in answer to Governor Rivlin's concerns, it would seem to me that there may be political reasons for wanting to substitute something, but I think history has indicated that when it comes to the economic... | 149 |
fomc | 1,996 | President Broaddus. | 5 |
fomc | 1,996 | Mr. Chairman, as you know, I have registered my discomfort with swap arrangements for some time, beginning with my votes against the renewal of a number of these arrangements in late 1994. Essentially, I think swap arrangements are undesirable because their primary purpose is to facilitate foreign exchange intervention... | 604 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. I have to admit my general skepticism regarding the effectiveness of intervention as a means of permanently affecting the value of the dollar. I do think that there are times when other smaller countries may be able to use intervention policies appropriately to affect their currencies. So, it s... | 309 |
fomc | 1,996 | Governor Kelley. | 3 |
fomc | 1,996 | Mr. Chairman, I have never been completely clear as to exactly what kind of an obligation these swap lines were. What are we obliged to do? It seems to me that whenever there is a likelihood that a central bank will want to draw on its swap line, that involves a full-blown discussion and negotiation anyway. A swap agre... | 360 |
fomc | 1,996 | One possibility is that we could move this forward if, for example, the Vice Chairman and I at meetings in Basle unofficially sounded out our counterparts concerning their views of these swaps agreements. It is very important for us to know if they think these are useless and obsolete appendages to the international fi... | 87 |
fomc | 1,996 | If we were to assume a world in which the swap network no longer existed, would any formal mechanism have to be created to replace it? My own working hypothesis on that would be "no." In my view, what would replace it is what in a way already replaces it. A good many of us spend a fair amount of our time--I spend essen... | 551 |
fomc | 1,996 | President Boehne. | 5 |
fomc | 1,996 | I start out with some fairly basic views. I think that we have to be involved in the world and that we have to provide leadership at times. That means doing all the things necessary to build personal and institutional relationships to support our involvement. Whether one views intervention in the foreign exchange marke... | 273 |
fomc | 1,996 | Do we need the swaps to do that? | 9 |
fomc | 1,996 | I am not arguing about whether we need the swaps per se. I am just saying that we need the means. If we can improve on the swaps mechanism or find other ways, that is fine with me. I do not think we ought to give them up until we are sure we have something else. | 61 |
fomc | 1,996 | Governor Meyer. | 3 |
fomc | 1,996 | Mr. Chairman, I found a lot on my plate as I prepared for this meeting, and you were the chef! [Laughter] Absorbing the memo on swaps got me very close to a form of intellectual indigestion. So I am not prepared to take a very firm position at this time, but I do want to share a few initial impressions. First, the curr... | 553 |
fomc | 1,996 | Governor Yellen. | 4 |
fomc | 1,996 | Mr. Chairman, I agree that the swap arrangements are by and large a legacy of times past and may have become something of an anachronism. But even if these arrangements have become largely symbolic, they do seem to me to be an important symbol of our commitment to international cooperation. Here I agree particularly wi... | 470 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | It seems obvious that the original purpose for establishing the swap arrangements is no longer as relevant as it once was. I do not think this necessarily means that we should unilaterally dismantle the swap lines. They are reciprocal arrangements. If our counterparts sense that we no longer have any need for the swap ... | 421 |
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