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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 Yes Governor Yellen Yes | 47 |
fomc | 1,996 | Thank you all. I would just remind you that the next meeting is on December 17. We adjourn for lunch. | 26 |
fomc | 1,996 | Good morning, everyone. This is Tom Davis's last meeting. He has been coming to these meetings for 20 years, and I suspect that by now he knows what they are all about, and just as he finally gets it, he has to leave. I think he has made an extraordinary niche in the System, and if there is ever a plaque in Jackson Hol... | 140 |
fomc | 1,996 | I hope this does not mean the end of the Jackson Hole conferences. | 14 |
fomc | 1,996 | If it means the end of Jackson Hole, Tom is coming back no matter where he is! [Laughter] Shall we start off? Would somebody like to move approval of the minutes for the meeting of November 13? | 45 |
fomc | 1,996 | So moved. | 3 |
fomc | 1,996 | Mr. Chairman, I have a minor suggestion on one of the changes from the preliminary draft of the minutes that we received just last night. It's in paragraph 13, and I talked to Mike Prell about this. I think that the suggested rewording gives the impression that inflation is projected to come down in a meaningful way, b... | 119 |
fomc | 1,996 | Why don't you do that. The problem here is that minutes are supposed to interpret what the FOMC members said, even when they are wrong. So, you can't argue that the minutes are wrong when they record what was said; you can only argue that they are wrong when the Secretariat inappropriately summarized what individual me... | 67 |
fomc | 1,996 | Mr. Chairman, in this case the reference is to the staff forecast, and the question is how to portray the movement of inflation in 1996, 1997, and 1998 and its relationship to-- | 44 |
fomc | 1,996 | Does the statement refer to what you said or to what one of your colleagues said? | 17 |
fomc | 1,996 | In essence, it refers to the Greenbook forecast. We could go back to the original wording in the preliminary draft of the minutes or we could put in something that says the price forecast is adjusted for technical changes. | 43 |
fomc | 1,996 | I presume, as President Moskow says, that this is a solvable problem and not something that we have to discuss here at length. Let us get it done. Without objection, we will give you all of our proxies. | 46 |
fomc | 1,996 | Thank you, Mr. Chairman. | 7 |
fomc | 1,996 | Peter Fisher. | 3 |
fomc | 1,996 | [Statement--see Appendix.] | 6 |
fomc | 1,996 | You mentioned that the dollar is holding up remarkably well considering the degree of downward pressure on dollar-denominated asset markets. A while ago, we discussed whether in fact one could ferret out the apparent intermediate- to longer-term effect on the dollar from rising dollar interest rates, the presumption be... | 149 |
fomc | 1,996 | Members of Ted's staff and my staff have been working on this, and I am afraid there is nothing that we can come forward with that is conclusive or very satisfactory. Staff are arguing back and forth, and I do not think there is anything that we can put our fingers on that provides a systematic explanation. The work is... | 224 |
fomc | 1,996 | The presumption, of course, is that if a significant part of dollar asset sales occurs on foreign accounts and the proceeds are exchanged into other currencies that would explain the decline in the dollar. Obviously, sales of dollar-denominated assets in which there is no exchange into foreign currencies by definition ... | 113 |
fomc | 1,996 | Yes, that is right. The lags are a bit long in that regard. I would also note that in addition to the mechanism that you are referring to, there is another mechanism. If risk appetites are large at the end of the cycle and these happen to be expressed in long dollar positions, people might collapse dollar positions in ... | 144 |
fomc | 1,996 | You talk like an economist! [Laughter] | 10 |
fomc | 1,996 | I have been exposed to them for a while! | 10 |
fomc | 1,996 | Peter, I have a couple of questions on your planned changes for Desk Operations. As I understand this, you have operations for customer accounts and you have operations for System account. Is my understanding correct that on System operations you are now going to announce the amount after the bids have been accepted? Y... | 93 |
fomc | 1,996 | Yes. That is the historic practice we have continued. Now, I may have gone too far in explaining this, but I think that in all likelihood customer operations may die on the vine. I do not want to announce that we will never do another customer operation, but I am hard pressed to see circumstances when I would be tempte... | 70 |
fomc | 1,996 | My question does not focus primarily on the customer side. Are there any advantages or disadvantages when you are doing System operations to announcing the amount of bids that you are looking for? | 35 |
fomc | 1,996 | Yes, I think there are some pros and cons to announcing the quantity in advance. The pro is that telling the market the amount of the contemplated operation is normally thought to be helpful. The con is that we like to look at dealer appetites as one indicator of funding needs, so I am rather uncomfortable in situation... | 242 |
fomc | 1,996 | That seems like a reasonable tradeoff. If you are planning to go in earlier, and I presume this is just a way station to entering the market still earlier as more information becomes available, that opens up the possibility, or maybe the likelihood, that you can come into the market more than once during the day. | 63 |
fomc | 1,996 | As I explained in the memo. | 7 |
fomc | 1,996 | Yes. What are the kinds of things that you look for--you have talked about this some, but could you elaborate--in deciding whether to go into the market a second time? Do you look at reserves; do you look at the funds rate; do you look at both; or do you in a sense put your hands over the market to get its feel? What h... | 77 |
fomc | 1,996 | Well, it has been a while since the Desk had any kind of habit of going into the market multiple times a day--I guess twenty years or so. I certainly have no hands-on experience with such multiple daily operations. Among the things we would look for would be an unexpected shift in the Treasury balance that could be a b... | 457 |
fomc | 1,996 | We would have a better sense of the demand for reserves late in the day. I think that one of the phenomena of this low reserve balance situation, at least a couple of years ago, was that things could shift rather dramatically in terms of demands for excess reserves very late in the day. I think many other central banks... | 90 |
fomc | 1,996 | So, in terms of the new framework for conducting operations, I think multiple operations on one day would be used infrequently but would be available to us. So, whether we operated at 9:30 a.m. or at 10:30 a.m., we would have the option of coming back at 11:30 a.m. if we became aware of something very tangible about th... | 163 |
fomc | 1,996 | Thank you. | 3 |
fomc | 1,996 | President Melzer. | 4 |
fomc | 1,996 | In that vein and before multiple interventions on the same day become commonplace, I think it would be helpful to the Committee to see some analysis of that. I have not thought about it a lot, but one of the things that worries me a little is the presumption among market participants that we are going to be there, and ... | 80 |
fomc | 1,996 | I would like to echo that concern. I agree with you and I would want the Committee to have that discussion. I also am quite worried that if we jump too quickly into multiple daily operations, we will actually reduce the incentive for intermediation in the fed funds market. Clearly, these incentives have been declining.... | 148 |
fomc | 1,996 | Overall, I think what you are doing is responsive to developments in the marketplace, and I applaud the steps you are taking. So, I am supportive of that. One other suggestion I would make, Peter, is that when you talk to the dealers about moving to an earlier time for Desk operations, you might want to telegraph that ... | 117 |
fomc | 1,996 | President Guynn. | 4 |
fomc | 1,996 | Peter, you talked about the expected performance gains. Can you say anything more about the magnitude of those gains by going in earlier? | 26 |
fomc | 1,996 | In terms of bids? | 5 |
fomc | 1,996 | Do you have any quantitative sense about that? | 9 |
fomc | 1,996 | Well, in the last couple of weeks, as you will have observed, we have operated a number of times at 10:30 a.m., in part responding to firm conditions in the funds market and the large need that I was worried that we might not have enough bids to cover. I should have this statistic on the tip of my tongue, but I don't--... | 175 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | I also applaud these moves in the direction of greater transparency. I think these are the kinds of things we should be doing. But you also are taking away one piece of information, for better or worse, stemming from the use of customer RPs. The way that was used in the past by the Desk was to help estimate the reserve... | 126 |
fomc | 1,996 | I have thought quite a bit about the pros and cons of providing some sense of our reserve forecast. Clearly in one sense, that would provide some modicum of certainty, but as soon as I have that thought I realize that it does not provide a modicum of certainty. Our forecasts are really quite movable feasts, and I will ... | 433 |
fomc | 1,996 | I understand that the errors in the daily forecasts stem principally from unexpected changes in the Treasury balance, but other factors such as float get in the way of accurate forecasts. Of course, that kind of uncertainty exists now in the way that what you announce to customers is interpreted, so I don't see where t... | 121 |
fomc | 1,996 | Yes, they do, and I think that raises an interesting question. They have a one-day maintenance period. If the decline in reserves balances and operating balances in the System led us to conclude that a two-week maintenance period was becoming irrelevant--it does not look like that is going to happen but we are on that ... | 268 |
fomc | 1,996 | I presume that that would take away the intra-period gaming that we see going on. I agree completely with Tom Melzer on the need for that kind of discussion, and I would suggest that when we have it that we include consideration of a more flexible use of the window. I am not against activity later in the day, but I als... | 133 |
fomc | 1,996 | Absolutely. Don Kohn and I had the benefit of being on a conference call with all the discount officers from the Reserve Banks, and we gently urged them to encourage greater flexibility in thinking about the use of the discount window. I think that group is very helpfully working on a number of issues, including the co... | 230 |
fomc | 1,996 | President Broaddus. | 5 |
fomc | 1,996 | Peter, just to get a little better handle on the magnitude of the benefits, do you have any sense as to whether the variance per day around the average effective fed funds target rate is greater in recent years? Are you having more trouble hitting your target in some sense? | 54 |
fomc | 1,996 | We have not had more trouble. At some point, I would like to bring an analysis forward to the Committee; it is not finished yet. We have begun using internally a standard deviation of the prior day's effective federal funds rate in volume-weighted terms. We have the raw data that are used to calculate the effective rat... | 327 |
fomc | 1,996 | Peter, I now have a table in front of me that shows this. The standard deviation of the daily federal funds rate from the FOMC's targets this year is a little higher than in 1993, 1994, or 1995 and about the same as in 1992. So, it really has been in about the same range for several years. I think an interesting aspect... | 144 |
fomc | 1,996 | Right. That applies to the rates at which funds have traded without taking volume into account. For example, it does not tell us how much trading there was at the higher rates during the day. | 39 |
fomc | 1,996 | The high-low range, for example, is wider this year than it has been for a couple of years. | 22 |
fomc | 1,996 | President Minehan. | 4 |
fomc | 1,996 | I want to add my approval; I welcome the changes. I think they will be helpful to you in getting a better range of bids. I did want to comment a little on your thoughts for making our operations more transparent, granted that there is a range of uncertainty, particularly about the projected need for reserves over a per... | 226 |
fomc | 1,996 | I think the shift in expected interest rates that occurred in the first week of December can hardly be attributed to the presence or absence of the Federal Reserve in the coupon market. Trading volume in that market is $70 to $100 billion a day, and whether or not we bought $4 billion would hardly seem to matter. It is... | 183 |
fomc | 1,996 | Yes, I realize that. The more transparent you get, the more everybody wants. | 17 |
fomc | 1,996 | He is creating unemployment! [Laughter] | 9 |
fomc | 1,996 | Some analysts who write these screens got it right. There was one who was absolutely on the money when he explained that the Desk probably was concerned about having to drain reserves in January. That is exactly what I told you, and I could have read his analysis here instead of my own. | 57 |
fomc | 1,996 | If there are no other questions, would somebody like to move to ratify the Desk's domestic operations? | 21 |
fomc | 1,996 | I move to ratify the operations of the Domestic Desk. | 12 |
fomc | 1,996 | Without objection. Let us now go on to Messrs. Prell and Truman. | 17 |
fomc | 1,996 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,996 | (Statement--see Appendix) | 6 |
fomc | 1,996 | Mike, what is the change in the December industrial production index that is implicit in your fourth-quarter average? | 21 |
fomc | 1,996 | As I recall, it is up about 3/10 of a percent. | 16 |
fomc | 1,996 | The weekly data, for what they are worth, are suggesting that it is flat to down. | 19 |
fomc | 1,996 | They account for a very small portion, as you know, of the overall index. | 17 |
fomc | 1,996 | So, I gather they will affect the quarter by only .1 or .2 percent. | 18 |
fomc | 1,996 | You mean the quarterly average? | 6 |
fomc | 1,996 | The total percentage change from the third to the fourth quarters if you are only affecting the December index. | 20 |
fomc | 1,996 | Exactly, it's a very small weight in the outcome for the quarter, but we have been looking at the other evidence such as trends in orders, and we are comfortable in anticipating a moderate increase. | 39 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Mike, I have two questions. The first deals with the PCE in the fourth quarter. Based upon the data that we have, which of course include the PCE for October, retail sales for October and November, and what we are hearing about retail sales for the Christmas season, do you feel that this is consistent with a PCE growth... | 81 |
fomc | 1,996 | We feel comfortable with that at this point. We are anticipating that, in part because of the effects of the cold weather that showed up in the utilities component of IP in November, the energy component of PCE services would be quite robust in November. I don't know what to make of all the anecdotal reports on Christm... | 191 |
fomc | 1,996 | The second question relates to what I heard you say about the distribution around GDP numbers for the fourth quarter. Based on the data you have seen, particularly the more recent data, would you, if you were to give us a new estimate, revise that estimate as well? | 54 |
fomc | 1,996 | Not materially. | 3 |
fomc | 1,996 | But probably up? | 4 |
fomc | 1,996 | More likely up than down given, for example, the stronger industrial production data. Also, the single-family housing starts will feed through rather directly in the calculation of residential construction activity in the current quarter and add a smidge. So, the adjustment might be in an upward direction but nothing o... | 61 |
fomc | 1,996 | Thank you. | 3 |
fomc | 1,996 | Who would like to start the roundtable? President Hoenig. | 13 |
fomc | 1,996 | Mr. Chairman, I will keep my comments brief because economic conditions in the Kansas City District have not changed a great deal since the last time we met. Our regional economy has continued to grow consistently, although at a moderate pace. On the anecdotal side, our directors and other business contacts report soli... | 339 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Mr. Chairman, relatively fast economic growth continued in the Twelfth District in recent months, making this a very good year in the West. Almost 1/3 of the jobs added across the 50 states over the last year have been in the Twelfth District states. As a matter of fact, the percentage growth in employment in our Distr... | 695 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | Mr. Chairman, overall conditions in the Seventh District economy are little changed since our last meeting. Our regional economy continues to operate at a high level, with unemployment rates in each of our five states still below the national average and most of our key manufacturing industries producing at or near cap... | 951 |
fomc | 1,996 | Mike, our reports from somewhat softer than what you are reporting. They have solid orders through January, softening in February, and there is no indication of firming into the second quarter. Did you check with them as well? | 46 |
fomc | 1,996 | We did, though they are not located in our District. We primarily contacted firms in our District, but we made a special effort to contact and we did not get any sense that there was any slowdown. But I think we only asked them about the first quarter, if I recall correctly. The firms that I talked to personally were t... | 72 |
fomc | 1,996 | Their cold-rolled sheet demand coming from autos is pretty good, but their pipe demand is poor. As I recall, they had not yet filled their first-quarter order books. The mini-mills, I suspect, are doing a good deal better, so your sample may have been more in that direction. | 61 |
fomc | 1,996 | Well, we specifically checked because this question had come up at the last meeting, and the word that I got from that orders for oil-related and tubular steel goods were very strong. | 36 |
fomc | 1,996 | That is true. President Minehan. | 8 |
fomc | 1,996 | The New England economy is humming along, though there is some bounciness in the data. Unemployment rates remain low; job growth is solid and on trend from an historical perspective. Net out-migration of the labor force is less than it was in the early '90s. Consumer confidence is better than it was a year ago. Real es... | 937 |
fomc | 1,996 | President Guynn. | 4 |
fomc | 1,996 | Thank you, Mr. Chairman. Reports that we get from around the Atlanta District indicate that growth has moderated somewhat since the summer, and the slowdown seems to be continuing into the fourth quarter. The signs of that slowdown are most apparent in residential construction and homes sales, but they also show up in ... | 697 |
fomc | 1,996 | President McTeer. | 5 |
fomc | 1,996 | The Eleventh District economy has continued its reduced, modest pace of expansion over the recent period. The typical situation in our District is for employment growth to be higher than the national average, but with the unemployment rate higher as well because of net in-migration. That pattern was reversed in the cou... | 616 |
fomc | 1,996 | President Broaddus. | 5 |
fomc | 1,996 | Mr. Chairman, economic conditions in our District have not not changed very much in the period since our last meeting. Growth overall remained relatively moderate compared to earlier in the year. Most of the anecdotal information that we get from our directors and others suggests a more moderate tone than earlier. We s... | 645 |
fomc | 1,996 | You are ready to declare victory? | 7 |
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