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fomc | 1,997 | Questions for Brian? | 4 |
fomc | 1,997 | Brian, if we were to have a multiyear horizon as our objective for getting to price stability, perhaps along the lines of the price stability alternative in chart 2 of the Bluebook, money growth would be slower in that environment, based on current relationships. Whether inflation, properly measured, is 2 percent or 3 ... | 177 |
fomc | 1,997 | Given our methodology for forecasting, I think that really is a question about how confident we are that nominal GDP growth would behave as projected in the Greenbook. We forecast money demand by looking at growth rates of nominal GDP, making an adjustment for projected movements in opportunity costs consistent with an... | 143 |
fomc | 1,997 | But we can distinguish among forecasts of nominal GDP. We do not target nominal GDP, but you can say there is an implicit nominal GDP target if you have a price stability objective. If you say your objective is to get nominal GDP growth down to the area of 2 to 3 percent and if your analytical framework tells you that ... | 145 |
fomc | 1,997 | Yes. Certainly in the steady state, if you will, when price stability is achieved we would not see a 5-1/4 percent nominal federal funds rate as consistent with that outcome. I guess the question relates partly to what federal funds rate path will take us to a steady state with price stability. Chart 2 in the Bluebook ... | 130 |
fomc | 1,997 | Okay, but chart 2 was developed within the NAIRU framework and the assumption that we know where the NAIRU is and where the current rate of unemployment is relative to it. I am asking you to think through the exercise for us and abstract from that. Have you or can you simply run through those interest rate alternatives... | 104 |
fomc | 1,997 | I guess I am a little unclear about what you are proposing, President Jordan. In the staffs view, you would have to raise interest rates considerably to get the lower nominal GDP growth that you want. If you are asking us what would happen if hypothetically nominal GDP simply decelerated with the funds rate being held ... | 132 |
fomc | 1,997 | Okay. We have run the exercise at our Bank where, if we take your price stability path and those related interest rate movements that we can pick off of chart 2, we produce an M2 growth of about 1 or 2 percent in about 3 or 4 years. | 58 |
fomc | 1,997 | That is totally plausible to me, given that we had 3-1/2 or 3-3/4 percent M2 growth associated with the smaller increase in the federal funds rate in the stable inflation alternative. So, lower M2 growth could well be associated with those higher interest rates. | 60 |
fomc | 1,997 | I think that the Bluebook with these alternatives was very helpful this time. Certainly, it provided a great deal of information about some of the issues that were raised in previous meetings and that we clearly are interested in. Don, there is one thing that I wanted to ask about chart 2. In calculating the real rate ... | 156 |
fomc | 1,997 | I agree and we tried to convey that point in a long, complex footnote. Maybe it was hard to read through. I will be covering it in my briefing as well, President Parry. | 40 |
fomc | 1,997 | Okay. | 2 |
fomc | 1,997 | But I agree with you. I think that it is very likely that people, in forming their price expectations, look at the whole array of prices that they are paying and not just at the core measures. To us, the core PCE was a little more revealing of the underlying sense of what was happening to inflation, and it abstracted f... | 205 |
fomc | 1,997 | Any further questions for Brian? If not, let me start off by saying that I do not see any significant change from the dilemma we have had in recent meetings on these longer-run objectives. I would stick a little bush next to the tree in Brian's chart to reverse the pattern slightly. [Laughter] The moment that we alter ... | 424 |
fomc | 1,997 | Could I just raise a question, Mr. Chairman? When you indicated that a 2 to 6 percent M2 range would be viewed as sanctioning 6 percent nominal income growth, I was a little surprised. Would you say that, consistent with the way these ranges have been used in the past, it would take an increase in money growth above th... | 80 |
fomc | 1,997 | No, not necessarily. | 5 |
fomc | 1,997 | You could say, after all, that the higher range is centered on 4 percent, which would be centered on 4 percent nominal income growth and on 2 percent real growth. Could one justify a tightening of policy if growth moved toward the top of that range? That is my question. | 59 |
fomc | 1,997 | You could, but that is exactly the type of problem I am not terribly certain we want to get involved with. In other words, why take on an added burden when we ourselves are uncertain about these relationships at this stage? | 45 |
fomc | 1,997 | That is the key. | 5 |
fomc | 1,997 | I do not think it conveys anything that we cannot convey by other means. Governor Rivlin. | 19 |
fomc | 1,997 | I think it is really simple. It seems to me that unless we made terribly sophisticated arguments, moving to a higher range would be interpreted as less vigilance against inflation and that is not where we are. | 40 |
fomc | 1,997 | Vice Chairman. | 3 |
fomc | 1,997 | I cant offer a counterargument, Mr. Chairman, because I think it would be extraordinarily unwise to shift from the present ranges to the higher ones. First of all, it would give the wrong signal about monetary policy. Secondly, even on Brian's tree without your bush, we probably will need to tighten in 1997. And this w... | 121 |
fomc | 1,997 | President Broaddus. | 5 |
fomc | 1,997 | Mr. Chairman, I agree with your analysis regarding M2, and I would favor alternative I pretty much for the reasons you stated. Whatever range we set for M2, though, I think we would all agree that the numerical ranges for the aggregates at this stage of the game are really not sufficient to convey completely our longer... | 725 |
fomc | 1,997 | Let me respond briefly. I agree with everything you said, and indeed I will get to that in later remarks that relate precisely to this question. The one issue that I think we ought to begin to focus on is the suitability of the CPI as a measure of anything. The Bureau of Economic Analysis over at Commerce has long sinc... | 336 |
fomc | 1,997 | Mr. Chairman, I did not mean to put too much weight on the CPI. I was really trying to emphasize that to the extent we can quantify our inflation goal that would seem to be one more step in the direction of tying down expectations. If there is a better number to use or some combination of numbers to communicate our inf... | 76 |
fomc | 1,997 | My impression is that this Committee has in effect been focusing on a lot of different price indexes, and there is a growing consensus here, as you suggest, that bringing inflation down over time is healthy to the long-term growth and viability of the American economy. I agree with that consensus. As I said, I would be... | 450 |
fomc | 1,997 | Can I make a comment? As I think all of you know, I have been traveling along my own road to Damascus on this issue. I believe that virtually every time I speak about anything, I refer to the theme of price stability, the wonders of price stability, and its merits for society. At a certain stage of my trip to Damascus,... | 309 |
fomc | 1,997 | President Melzer. | 4 |
fomc | 1,997 | I was just going to comment, Alan, that I understand what you are saying on the political side. On the other side, it seems fair to say that there is a rather large uncertainty premium in real rates with respect to future inflation. Expectations of 3 percent inflation seem to be fairly widespread, but my guess is that ... | 76 |
fomc | 1,997 | A 3 percent inflation rate as measured by the CPI? | 12 |
fomc | 1,997 | Yes, I guess that is right. I'm talking about surveys; I believe some of those surveys and economists' projections are based on the CPI. But I think there is a fairly high uncertainty premium and some concern about where we are going with this. So, I believe there are some economic costs associated with our not being m... | 102 |
fomc | 1,997 | The question, Tom, really gets down to the issue of what evidence we have that our making explicit statements actually alters that risk premium. | 27 |
fomc | 1,997 | I understand what you said before about it. | 9 |
fomc | 1,997 | I think that monetary policy action is what does it. There is no evidence in my experience that words have had the slightest effect. It has not helped the Bundesbank, and if it has not helped the Bundesbank, how is it going to help anybody? The Bundesbank has succeeded because it has taken effective actions. It is what... | 81 |
fomc | 1,997 | In that regard you probably made the most significant point by suggesting that we ought to start with this by being more explicit among ourselves. I do not anticipate having that discussion in the next half hour or hour but in due course here. It may be something we could pursue in anticipation of the next Humphrey- Ha... | 116 |
fomc | 1,997 | President Broaddus is not raising that. He is raising, I think, a more interesting question. I think everyone around this table shares essentially the same philosophical economic base. We all have the same view of how the economy functions. We have different views as to what is happening, but nobody here says that the ... | 128 |
fomc | 1,997 | I do not mean to suggest that! All I'm saying is that I think it would be useful if we were more explicit among ourselves with respect to what measures we ought to be focusing on, where we want to get to with those, and over what time frame. I think you said the same thing. You had no problem with our being more explic... | 92 |
fomc | 1,997 | Yes, I think the more explicit we are internally and the more we discuss this issue among ourselves, the better. I can honestly say that if you asked me to go around the table and make a speech on this subject for everyone here that I could do it. You would be surprised at how explicit you have all been. So, I doubt th... | 112 |
fomc | 1,997 | I wasn't worried about that. | 6 |
fomc | 1,997 | Mr. Chairman, could I make one other brief comment? I don't want to push this too hard, and I certainly respect your views and the views that the Vice Chairman expressed as well. I would just make the point that although the actions of the Bundesbank are certainly key to their success they also have a mandate that I th... | 112 |
fomc | 1,997 | I did not say the conclusion was that it did not work. I said the evidence of it working is lacking. | 23 |
fomc | 1,997 | Okay, I was just trying to soften the conclusions you draw from that point. [Laughter] | 20 |
fomc | 1,997 | Governor Meyer. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. I think I have a somewhat different perspective on the monetary aggregate ranges, and I want to share that with you. Someone suggested that the main reason we do not want to raise the target ranges is that raising them would suggest less vigilance on our part with respect to inflation. That is ... | 658 |
fomc | 1,997 | I am not sure anyone around here would disagree with your formulation. I ought to point out, however, that Humphrey-Hawkins also requires unemployment goals, which used to be discussed by the Administration and the CEA though I think they forgot to do that in the last couple of reports. What has happened to Humphrey-Ha... | 210 |
fomc | 1,997 | Humphrey-Hawkins does not mandate us to do anything; we just have to explain why we do not. | 24 |
fomc | 1,997 | I agree with exactly the way you formulated it. | 10 |
fomc | 1,997 | One other thing if I might, Mr. Chairman: There has been some discussion about how explicit we ought to be with respect to inflation targets and inflation ranges. As I have thought about this, it has seemed to me that when we were very far away from where we wanted to get, a vaguer definition of price stability was per... | 181 |
fomc | 1,997 | May I ask what is preventing us from doing that? Is there anything in the way we structure the meeting that is doing that? | 26 |
fomc | 1,997 | I think in a way there is because in most of our meetings we are really focused on a decision about what to do with the federal funds rate for the period between that meeting and the next meeting and on a forecast that goes out one year ahead and at most two years ahead. The decision relating to inflation really does n... | 126 |
fomc | 1,997 | I don't think there is any disagreement about that, but let me ask you this. Does anyone have any suggestions as to how we might alter the structure of these meetings to enhance that kind of discussion? I am not aware of anything that is inhibiting such a discussion, but I want to make sure that I am not being blindsid... | 73 |
fomc | 1,997 | I think that we could make our meetings more of a discussion rather than a series of individual presentations. On occasion we discuss something that a member said. That has happened more this morning than in quite some time. You said something; I along with other members commented on it. We had a more useful exchange o... | 159 |
fomc | 1,997 | Joke number 473. | 6 |
fomc | 1,997 | Exactly. | 2 |
fomc | 1,997 | And everyone laughs! | 4 |
fomc | 1,997 | President Parry. | 4 |
fomc | 1,997 | I certainly support the recommendation for Bluebook alternative I and basically for the reasons that have been mentioned. It seems to me, and I would emphasize this, that raising the ranges would cause unwarranted focus on the aggregates. I am not confident at this point that velocity is sufficiently stable to warrant ... | 97 |
fomc | 1,997 | President Boehne. | 5 |
fomc | 1,997 | Just to add a footnote to the earlier discussion about being explicit: We really have a remarkably good track record over the last 15 years, and I think that track record is based on a good combination of solid economics and pragmatism. It is not just the 15-year record; we have a good 5-year record, a good 1-year reco... | 376 |
fomc | 1,997 | President Stern. | 3 |
fomc | 1,997 | I, too, support alternative I for the reasons that have been cited, and I do not have anything to add there. But let me comment a little on a couple of other issues. First, with regard to a more explicit inflation target that we would go public with, I would tread very cautiously in that direction and not just because ... | 283 |
fomc | 1,997 | Let me just say something that came to mind yesterday afternoon. I read the Beigebook, and I listened to the discussion around this table. They are two separate samples. Around this table, I thought that there was far greater concern about economic strength and associated inflationary pressures than appeared in the las... | 64 |
fomc | 1,997 | Well, my suggestion would be that we not dispense with our District reports altogether, but I think we could highlight things that are different or outliers. | 30 |
fomc | 1,997 | Let me tell you this. I don't know whether I can speak for the rest of us on the Board, but I can surely speak for myself. I find the individual reports and interpretations of what is going on in your Districts to be new information that is not available either in the Beigebook or elsewhere. I would be very reluctant t... | 142 |
fomc | 1,997 | All right. | 3 |
fomc | 1,997 | If any of you have particular ideas that you want to put on the table for discussion, let us know. There is no reason why members of this Committee cannot present specific ideas they think are relevant. We can lay it out as part seminar. The rest of us can discuss it. And as the Vice Chair says, that will lead to other... | 149 |
fomc | 1,997 | My goodness! | 3 |
fomc | 1,997 | Three minutes to go! | 5 |
fomc | 1,997 | President Hoenig. | 4 |
fomc | 1,997 | At the risk of proving your point here, [laughter] let me just say that I agree with you on the alternatives. With regard to the issue raised in our earlier discussion, I too am a little nervous about picking an inflation number and target path. That's not because I wouldn't like to see lower inflation happen, but I se... | 291 |
fomc | 1,997 | That is the issue Mike Moskow was raising yesterday about the CPI. | 14 |
fomc | 1,997 | I think so. | 4 |
fomc | 1,997 | President Melzer. | 4 |
fomc | 1,997 | Alan, I favor adopting the provisional ranges, which is alternative I. On the issue you raised about whether there is anything impeding these discussions or what we could do to foster them, it seems to me that it would be very useful to ask FOMC staff--Board and Bank staff--to research the issue Tom Hoenig was just tal... | 223 |
fomc | 1,997 | President Guynn. | 4 |
fomc | 1,997 | I also prefer staying with the provisional ranges and getting there by the left leg of Brian's tree that we talked about. After sitting at this table for a year and working through the short-term options meeting after meeting, I guess I have gravitated toward wishing for a better sense and a crisper view of our collect... | 285 |
fomc | 1,997 | In fact, as I am going to note explicitly in remarks that I will make later, I find that complacency very nervous-making and in particular its reflection in the sharp narrowing of junk bond yield spreads against Treasuries, the level of equity premiums in the stock market, and various relationships that one can infer f... | 186 |
fomc | 1,997 | Thank you, Mr. Chairman. I agree with the proposal to retain alternative I. I do think, in terms of full Humphrey-Hawkins disclosure, that we should expand the discussion in the Humphrey-Hawkins report and indicate that we think M2 and M3 growth may well be near the upper ends of our 1997 growth ranges but that we are ... | 104 |
fomc | 1,997 | We have to because we considered that. | 8 |
fomc | 1,997 | The other thing I wanted to mention is that I also, like you, find the discussions of District developments at these meetings very useful, though others may feel that they are a rehash of the Beigebook. I do think that we could relate what we see in each of our individual corners of the world to inflation and various m... | 256 |
fomc | 1,997 | President McTeer. | 5 |
fomc | 1,997 | I also favor no change in the ranges for the reasons that you gave, Mr. Chairman. We certainly do not want to give the M's too much external play nor to give the impression that we are once again targeting any of them. On the other hand, not only do I think we should be watching them more internally than I believe we h... | 196 |
fomc | 1,997 | As soon as we start to use it in that context, then when M2 starts to grow at a far slower rate, though we may not think that means anything, we have put it in play and the devil will come back to collect his dues. | 51 |
fomc | 1,997 | I think there is a difference, though, between hanging your hat on it and merely keeping it alive. | 21 |
fomc | 1,997 | I think we ought to keep it alive, and I agree with that idea. If indeed we gain confidence in M2, then we should be willing to allow monetary policy to reflect our evaluations of what is happening to money. We could conceivably tighten if M2 growth is perceived to be excessive and ease if it is looking to be-- | 69 |
fomc | 1,997 | I doubt that we will end up tightening today, but if we were to do so, I think that one of the main reasons would be that M2 growth is at the upper end of its range right now. In my view that is as good a reason as any of the other reasons that I could list. I would feel more comfortable with that than I would doing it... | 84 |
fomc | 1,997 | I will tell you that if the reason is that the labor markets are getting too tight and wage increases are accelerating, there is a very large section of the population who would say, "Isn't that wonderful!" Governor Kelley. | 45 |
fomc | 1,997 | Mr. Chairman, I certainly support alternative I. The reasons have been well discussed and I don't have anything to add. It may be redundant but I would like to add the following: It seems to me that we are entering a new era of appropriate intellectual focus in all our concerns here. I think we have had the first airin... | 383 |
fomc | 1,997 | A very good idea. | 5 |
fomc | 1,997 | Yes. | 2 |
fomc | 1,997 | President Minehan. | 4 |
fomc | 1,997 | If you wait long enough to talk at these meetings, others have already said everything that you planned to say. I think Mike Kelley hit on exactly the right formulation here. We may be closer than we know to a maintenance situation that has its own set of difficulties. These difficulties differ perhaps from those that ... | 258 |
fomc | 1,997 | President Jordan. | 3 |
fomc | 1,997 | I guess I am a little out of step with the way the issue is being defined in this discussion because my first choice would be not to announce target ranges at all and to explain why not. Concurrent Resolution 133 and Humphrey-Hawkins were both adopted in an environment where, even in the economics profession, there was... | 259 |
fomc | 1,997 | I think Heisenberg would not have approved of that application of his principle! | 16 |
fomc | 1,997 | I think that this is the time, whether it is in your Humphrey-Hawkins testimony in a couple of weeks or not, to start to try to get money out of there. The legislation does not require that we announce any particular money measure--M1, M2, or anything else. It says something broadly about monetary aggregates. I think w... | 163 |
fomc | 1,997 | It has always been the case that if we had new legislation to replace Humphrey-Hawkins, I do not think we would necessarily be pushing for target ranges. We would think that something else would be more relevant to what we would be doing. President Moskow. | 54 |
fomc | 1,997 | Mr. Chairman, I agree with alternative I. If we did change the ranges, I think that would be interpreted as a change in policy and we really are not making a change in policy. No matter how sophisticated our explanation, I believe it would still be interpreted as a change in policy. On some of the other topics that hav... | 308 |
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