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fomc | 1,997 | There seems to be close to, if not full, unanimity on alternative I. As a consequence of that, I would not differentiate between the M2, M3, and debt aggregates, but I would assume that all the ranges need to stay where they are. So, I think the simplest procedure would be for a reading of a directive that would encomp... | 74 |
fomc | 1,997 | The wording is on page 21 of the Bluebook: "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. In furtherance of these objectives, the Committee at this meeting established ranges for growth of M2 and M3 of 1 to 5 percent ... | 150 |
fomc | 1,997 | Call the roll on that. | 6 |
fomc | 1,997 | Mr. Chairman, could I ask a question? | 10 |
fomc | 1,997 | Certainly. | 2 |
fomc | 1,997 | Will the report include the sentence that has appeared in the last several reports that these ranges are interpreted as a benchmark associated with price stability and normal velocity? | 30 |
fomc | 1,997 | Do you mean in the minutes or the testimony? | 10 |
fomc | 1,997 | In the testimony. How do we interpret these ranges because that is not in the paragraph that was read? | 21 |
fomc | 1,997 | I would assume that we would do it the same way we did it the last time. The minutes would also indicate what that means. | 27 |
fomc | 1,997 | Right, it is not in that paragraph. | 9 |
fomc | 1,997 | Call the roll. | 4 |
fomc | 1,997 | Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus Yes President Guynn Yes Governor Kelley Yes Governor Meyer Yes President Moskow Yes President Parry Yes Governor Phillips Yes Governor Rivlin Yes | 41 |
fomc | 1,997 | We shall now move on to current monetary policy and the domestic policy directive. I call on Don Kohn. | 22 |
fomc | 1,997 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,997 | Questions for Don? | 4 |
fomc | 1,997 | Don, if I were to paraphrase one of the first sentences in your briefing, it would say that the present stance of policy is too easy to contain inflation. With that as a background, I would like you to explain to me what opportunism calls for at this point. [Laughter] It seems to me that if your assertion is true and g... | 113 |
fomc | 1,997 | No, we have not. I think the question becomes one of how much confidence the Committee or the Committee member involved has in this projection that inflation will pick up. This is a forecast and there is a range of uncertainty around it. It is true that under an opportunistic strategy, there would be an inclination to ... | 137 |
fomc | 1,997 | So, pursuing the current policy would require me as an opportunist to say that I just do not buy the forecast? | 24 |
fomc | 1,997 | I think it would mean that you would have sufficient uncertainty about the forecast and a sense that it was desirable to wait a while to get more information, particularly given some of the factors we have talked about that will be holding down overall inflation and probably inflation expectations this year. You would ... | 79 |
fomc | 1,997 | There certainly is a danger in doing that. | 9 |
fomc | 1,997 | The cost of waiting would be that in the event of some upcreep in inflation and inflation expectations and given the lags in policy, you would have to induce more slack in the economy to keep inflation at the current level. The benefit would be that if you had acted sooner on an incorrect forecast, you would have put s... | 90 |
fomc | 1,997 | Thank you. | 3 |
fomc | 1,997 | President Melzer. | 4 |
fomc | 1,997 | Don, we have had only one issue of inflation indexed bonds, but are there any preliminary conclusions you could draw from that or is it premature to do so? | 32 |
fomc | 1,997 | I think it is premature. As a general matter, the bonds were, as you know, in greater demand and better received than most people thought they would be. I think there is still uncertainty in the market about how to trade them, what they should be trading against, and what we as analysts should be comparing them to try ... | 193 |
fomc | 1,997 | Vice Chair. | 3 |
fomc | 1,997 | Don, you mentioned in your very good as always presentation that there may be some questioning as to whether we are still in the preemptive monetary policy business or at least we are beginning to get those questions. My own feeling from looking at the behavior of the markets and being in New York and therefore having ... | 196 |
fomc | 1,997 | I dont fundamentally disagree with your analysis. I guess I was motivated in part by my own concerns, and I did not have any good answers about how the Committee would act preemptively, particularly in a situation where we had a slow, steady upcreep in inflation and some market commentary that, because of the uncertain... | 93 |
fomc | 1,997 | It sounds as if you would agree that there is a wasting asset quality. | 15 |
fomc | 1,997 | Our assessment of the market's interpretation of us, this looking-in-the-mirror question, has become more complicated over the last few years because you folks have done such a good job. When you do not tighten monetary policy, people say the FOMC must know something that they do not know--that the underlying inflation... | 115 |
fomc | 1,997 | I agree with that. | 5 |
fomc | 1,997 | Further questions for Don? | 5 |
fomc | 1,997 | Don, have you run any simulations, other than those reported in the Bluebook, with NAIRU specified at some lower level, perhaps the 5.3 percent rate that we have been at for some time? Even if you have not, do you have any sense about how sensitive the inflation path is to some lower NAIRU? | 69 |
fomc | 1,997 | It would be symmetrical, President Guynn. | 9 |
fomc | 1,997 | It would? | 3 |
fomc | 1,997 | You could look at that higher NAIRU simulation in the Bluebook and subtract changes rather than add them to get an idea. | 26 |
fomc | 1,997 | Is there anything else? Let me get started by beginning with the bottom line and working backwards. My uppermost concern is the emergence of gradual, drip-by-drip inflation pressures. As Governor Kelley said the other day, there is no entry point where we can say conclusively that we should be tightening, yet we may fi... | 2,235 |
fomc | 1,997 | We can certainly assume that it is very substantial. | 10 |
fomc | 1,997 | If I were allowed to invest in the market, which they do not allow around here, I don't think I would be doing so very forcefully! It is that type of thing plus the various risk spreads, which are really quite narrow and have been that way for quite a while, that suggest that product prices alone should not be the sole... | 675 |
fomc | 1,997 | Mr. Chairman, I fully endorse the recommendation you have made, and I will try to fill in the gap while others prepare for the pop quiz on your evaluation of the equity market. I also think the asymmetry really is quite different because I now read it as meaning that we will tighten soon and probably at the March meeti... | 822 |
fomc | 1,997 | President Hoenig. | 4 |
fomc | 1,997 | Mr. Chairman, I understand your argument. I have to confess, though, that I have some concerns about waiting. The market is now aware that we experienced very strong economic growth last year and that we are seeing some of the effects of that growth in terms of capacity use and so forth. As we go down the road, I do no... | 166 |
fomc | 1,997 | I would just comment that the last thing I want to do is to look at the last quarter's growth. | 22 |
fomc | 1,997 | I understand. | 3 |
fomc | 1,997 | In other words, to cater to that point of view would be unwise. | 16 |
fomc | 1,997 | But I think that perception exists. In any event, we now see at least a reasonable consensus that higher inflation is in prospect, and that is what we should act on. If we do not move when we have that sort of consensus, I think we will find ourselves in a more difficult position in terms of taking action down the road... | 68 |
fomc | 1,997 | The purpose of the Humphrey-Hawkins testimony will be to address exactly that subject. | 18 |
fomc | 1,997 | Okay. | 2 |
fomc | 1,997 | President Parry. | 4 |
fomc | 1,997 | Mr. Chairman, the recent surge in economic activity has raised the level of output, which already appeared to be above its long-run potential. This has intensified my concerns about the outlook for rising inflationary pressures, and I think it has provided a stronger case for tightening policy. Moreover, the two moneta... | 208 |
fomc | 1,997 | Governor Meyer. | 3 |
fomc | 1,997 | The staff projects a decline in the unemployment rate to 5 percent, more than 1/2 percentage point below their estimate of NAIRU, and as a result they see progressive deterioration in the inflation outlook. Now, if we were all sure of this forecast, I think we would all agree to tighten immediately even though the shar... | 536 |
fomc | 1,997 | President Broaddus. | 5 |
fomc | 1,997 | Mr. Chairman, this morning's decision is a really tough one and frankly the comments of Bob Parry and Tom Hoenig have made it tougher. A number of the comments you made have given me some comfort, though, so I can accept your recommendation this morning. But let me say emphatically that unless we see a very marked chan... | 137 |
fomc | 1,997 | President Minehan. | 4 |
fomc | 1,997 | Timing is everything, I guess. In the past year or so I thought a somewhat tighter monetary policy would be appropriate. I would have reversed the insurance policy, the final one we took out at the beginning of last year. But as the year progressed, and looking at third-quarter data, I began to believe that tightening ... | 507 |
fomc | 1,997 | Governor Kelley. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. I completely support your proposal; I believe it is the right one. I also think that suggestions that we may need to move in the near future are probably correct, and I would support that as the most likely probability. But I am a little uncomfortable with what may be an excessive amount of pre... | 190 |
fomc | 1,997 | President Jordan. | 3 |
fomc | 1,997 | Thank you. I am delighted with last year's results even though they were not forecast by anybody. [Laughter] I hope for similar mistakes this year in the sense of more growth, lower unemployment, and less inflation than we are now projecting. But I also recognize that if we had been more accurate in anticipating the wa... | 412 |
fomc | 1,997 | President Boehne. | 5 |
fomc | 1,997 | I buy into your basic approach. I think the odds are that we will have to tighten. It is not an absolutely foregone conclusion. Some open-mindedness is appropriate, but I think your general framework is right. On the communications issue, all of us around the table have had a fair amount of training in economics and we... | 323 |
fomc | 1,997 | President Moskow. | 4 |
fomc | 1,997 | Mr. Chairman, if we believe the Greenbook forecast, we will see core inflation accelerate from 2.6 percent last year to 2.8 percent this year and to 3.2 percent next year. If we add in the adjustment for technical changes, the number in 1998 accelerates to 3.6 percent, which I believe we would all find unacceptable. It... | 314 |
fomc | 1,997 | Governor Rivlin. | 4 |
fomc | 1,997 | I also support your recommendation for "B" asymmetric. I would include a strong expression in your Humphrey-Hawkins testimony of our concern about the sustainability of low inflation with tight labor markets. I believe this is the best informed group about the American economy that one could possibly assemble anywhere,... | 347 |
fomc | 1,997 | President Stem. | 3 |
fomc | 1,997 | I agree with your recommendation. Let me just take a moment to elaborate. In my view, circumstances have not changed significantly in recent months, so I continue to think there is a reasonably high probability that we are going to want to adopt a more restrictive policy over the course of 1997. But if I ask myself why... | 203 |
fomc | 1,997 | President Melzer. | 4 |
fomc | 1,997 | Thanks, Alan. I favor alternative C or at least something in that direction, and my reasons remain the same as I have been stating: I think inflation is too high, and I see increasing evidence that inflationary pressures are building, especially in labor markets. Finally, I do not think one can say that the stance of p... | 308 |
fomc | 1,997 | Governor Phillips. | 3 |
fomc | 1,997 | Thank you. I support "B" asymmetric. It seems to me that the situation is fairly similar to where we were last summer. My guess is that we will need to tighten this year. I have the impression that employers have run out of room in terms of their ability to pass on price increases. So, I think the inflation dragon is g... | 121 |
fomc | 1,997 | President Guynn. | 4 |
fomc | 1,997 | Thank you, Mr. Chairman. I, too, am comfortable with the way you laid things out and I support your recommendation. It became clear to me as the go-around proceeded yesterday that I am at least a bit more optimistic than some around the table in terms of how the wage pressures may play out. My view may be colored by th... | 204 |
fomc | 1,997 | President McTeer. | 5 |
fomc | 1,997 | I support your recommendation. Do you know yet when your first Humphrey-Hawkins testimony will be? | 21 |
fomc | 1,997 | February 25 or 26, I think. | 10 |
fomc | 1,997 | The first will be February 26. | 8 |
fomc | 1,997 | So, February 26 and 27. A significant majority of the voting members seems inclined toward "B" asymmetric, and I request that the Secretary read such a directive. | 35 |
fomc | 1,997 | The draft wording is at the bottom of page 21 in 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 g... | 116 |
fomc | 1,997 | Call the roll. | 4 |
fomc | 1,997 | Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus Yes President Guynn Yes Governor Kelley Yes Governor Meyer Yes President Moskow Yes President Parry Yes Governor Phillips Yes Governor Rivlin Yes | 41 |
fomc | 1,997 | Our next meeting is March 25. With respect to your forecasts, if you could send any changes you wish to make in those forecasts to Mike Prell by February 7, this Friday, he would be most appreciative. We have a lunch at 1:00 p.m.? | 57 |
fomc | 1,997 | Yes, the lunch in honor of Governor Lindsey is at 1:00 p.m. | 18 |
fomc | 1,997 | We have scheduled a pre-lunch discussion of the surplus issue after this meeting. | 16 |
fomc | 1,997 | This meeting is adjourned. | 7 |
fomc | 1,997 | Good morning, everyone. Is Mike Prell coming? | 11 |
fomc | 1,997 | Mike is arriving for a just-in-time briefing, Mr. Chairman. [Laughter] | 18 |
fomc | 1,997 | Would someone like to approve the minutes of the February 4-5 meeting? | 16 |
fomc | 1,997 | So move. | 3 |
fomc | 1,997 | Without objection. Mr. Fisher, you are on. | 11 |
fomc | 1,997 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,997 | Before I ask a question, I have a hypothesis. It is conceivable that the 1982 report on System holdings of individual securities slipped between the drawer and the bottom of somebody's desk and that created a precedent. [Laughter] Therefore, the data were not published in 1982 and it was presumed that they should not b... | 123 |
fomc | 1,997 | Move approval, Mr. Chairman. | 7 |
fomc | 1,997 | Without objection. We also need a vote on the intermeeting leeway. | 15 |
fomc | 1,997 | Move approval of the additional leeway to $12 billion. | 12 |
fomc | 1,997 | It has been moved. Is there a second? | 10 |
fomc | 1,997 | Second. | 2 |
fomc | 1,997 | There is a second. Without objection. Thank you all. Let's move on with record speed to Mr. Prell. | 24 |
fomc | 1,997 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
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