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fomc | 1,997 | It seems to me that we are witnessing a very impressive performance by the U.S. economy. Everything that has been said around this table today and for quite some time is testimony to the basic strength and resilience of the economy and its ability to restructure itself. But we really do not know very much about how it ... | 911 |
fomc | 1,997 | Governor Phillips. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. It has been almost two months since our last meeting, but in many ways the economic situation seems like more of the same: strong growth in both demand and production, continued expectations of a slowdown, and inflationary pressures that generally seem to be contained. I don't see any need to r... | 975 |
fomc | 1,997 | Governor Kelley. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. Earlier when President McTeer was about to begin the "tour de table," reference was made to the recent episode of the so-called "Republic of Texas." If I understood President McTeer correctly, his reply was that the Republic of Texas and the Eleventh District are about the same thing. As Chairm... | 962 |
fomc | 1,997 | Governor Meyer. | 3 |
fomc | 1,997 | My reading of first-quarter performance and incoming monthly data suggests the economy will slow sharply in the second quarter in line with the Greenbook forecast. Special factors boosted growth in the first quarter while payback and special factors are at work in the current quarter. Inventory investment clearly is pl... | 1,291 |
fomc | 1,997 | Thank you all. I think we can go for coffee. | 12 |
fomc | 1,997 | Shall we resume? Mr. Kohn. | 10 |
fomc | 1,997 | Thank you, Mr. Chairman. (Statement--see Appendix) | 13 |
fomc | 1,997 | Questions for Don? If not, let me start off. I think the probability that we are in a very unusual era is rising. A number of developments point in that direction, and they raise some very fundamental questions about how to view this economy and how to implement policy. At the risk of being a little more definitive tha... | 3,038 |
fomc | 1,997 | Mr. Chairman, during the go-around I gave a shortened version, not intentionally, of the very interesting analysis you made of productivity developments. As I said then, an advantage of attributing the unusually favorable performance of unit costs to higher productivity growth was that it removed some of the mystery su... | 270 |
fomc | 1,997 | Governor Rivlin. | 4 |
fomc | 1,997 | I agree. I think your analysis is very appealing. I hope it is right; it will take us a little while to find out. I believe we all agree that the risks are still on the upside, that the economy is very strong, and that we probably will have to move again. In my view, the psychological argument is very much in favor of ... | 131 |
fomc | 1,997 | Governor Meyer. | 3 |
fomc | 1,997 | Let me begin with some further thoughts on the Taylor Rule perspective on monetary policy options and the changes in initial conditions and forecasts between this meeting and the March meeting. This will lead me into my own version of the policy options for today's decision, with special attention to the interpretation... | 2,074 |
fomc | 1,997 | President Jordan. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. I agree that there are a lot of similarities to the 1920s. I just do not want it to end the same way. [Laughter] I don't even know what to call the next decade when the years after 2000 are counted in single digits. Once we get to the teens, I'll be fine. But I expect to end my career in the ne... | 412 |
fomc | 1,997 | President Hoenig. | 4 |
fomc | 1,997 | Mr. Chairman, like some others around the table, I would like to move steadily and persistently toward price stability as measured somehow. This will require some further tightening and I think the economy could absorb that tightening rather well. However, it is also very apparent to me--I commented on this earlier--th... | 131 |
fomc | 1,997 | President Broaddus. | 5 |
fomc | 1,997 | This has been a tough meeting, Mr. Chairman, but I think a very good one with a lot of constructive comments. Early in the meeting, Jerry Jordan summed it up best for me when he said that the choice may well be between moving a little now and moving a lot more later on. Let me make a couple of observations. We all reco... | 561 |
fomc | 1,997 | President Parry. | 4 |
fomc | 1,997 | Mr. Chairman, for me the policy choice comes down to assessing alternative risks. It appears to me that the risk associated with raising the funds rate is smaller than the risk of not raising it. If we tighten policy and that action turns out to have been unnecessary, we would slow the expansion a bit, but there would ... | 220 |
fomc | 1,997 | President Minehan. | 4 |
fomc | 1,997 | I think my analysis is quite similar to Bob Parry's. We need to assess both the risks that we face and the costs of being wrong in any action we take. I, too, view staying put as a policy action. As I noted earlier, the risks that growth will be more rapid and inflation more difficult seem to me to continue to be stron... | 640 |
fomc | 1,997 | President Stem. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. I have to admit that I feel a little like Dr. Watson to your Sherlock Holmes. You wove together all these strands and reconciled the various puzzles that I have been worried about. Whatever else may be going on, we know that as the period of economic growth has lengthened, gains in employment h... | 308 |
fomc | 1,997 | President Boehne. | 5 |
fomc | 1,997 | This decision comes down to balancing the need for more insurance versus wait-and-see. I am more persuaded by the wait-and-see argument. There is, as I look at it, more upside risk on the demand side in the future, but there is also upside potential on the supply side, which we have consistently underestimated. If ther... | 213 |
fomc | 1,997 | Governor Kelley. | 3 |
fomc | 1,997 | Mr. Chairman, I had intended to say something much like what President Boehne just said. Let me simply associate myself with his remarks and concur with your recommendation. | 34 |
fomc | 1,997 | President Melzer. | 4 |
fomc | 1,997 | Thanks, Alan. I think the inflation risks are on the upside, as I said before, and I believe it would be prudent to take out some additional insurance now in the form of a 25 basis point increase in the federal funds rate. To reemphasize a point that was made earlier--I know Al Broaddus made it and others probably did ... | 296 |
fomc | 1,997 | Governor Phillips. | 3 |
fomc | 1,997 | I could support "B" symmetric or asymmetric. I do not have strong feelings on the symmetry question because if we were to move in the intermeeting period, I think there would be some kind of consultation. I do think that tightening is eventually going to be needed, but since inflation has been rather benign recently, i... | 162 |
fomc | 1,997 | President Guynn. | 4 |
fomc | 1,997 | Thank you, Mr. Chairman. I have a preference for an additional 1/4 point tightening, but I can support your recommendation for today. In any event, I certainly would support an asymmetrical directive. In view of the hour, I will not repeat all the arguments. The possible payback of staying ahead of inflationary pressur... | 261 |
fomc | 1,997 | President Moskow. | 4 |
fomc | 1,997 | Mr. Chairman, our outlook for the economy in 1997 is very similar to the Greenbook forecast, but we are a little more optimistic on inflation. However, we are assuming a slightly higher federal funds rate through the end of the year than does the Greenbook in its baseline forecast. I am very pleased that you raised the... | 472 |
fomc | 1,997 | President McTeer. | 5 |
fomc | 1,997 | I support your recommendation. | 5 |
fomc | 1,997 | Would you read the directive that would encompass "B" asymmetric? | 13 |
fomc | 1,997 | I will be reading from page 13 in the Bluebook. There are several charts that come before it, so when you get to page 12 you will have to go several more pages. "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... | 139 |
fomc | 1,997 | Call the roll. MR. BERNARD: Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus No President Guynn Yes Governor Kelley Yes Governor Meyer Yes President Moskow Yes President Parry Yes Governor Phillips Yes Governor Rivlin Yes | 50 |
fomc | 1,997 | Our next meeting is July 1 and 2. Let's go to lunch. | 16 |
fomc | 1,997 | I have the gavel that was used for Federal Reserve Board meetings in 1914. I was going to bring it in for this meeting, but it appears to be fragile even though it looks more like a weapon than anything else. [Laughter] | 51 |
fomc | 1,997 | Mr. Chairman, have wood mites attacked it? [Laughter] | 14 |
fomc | 1,997 | It looks more like attacks by the Congress than wood mites. Regrettably, this is the last meeting for Rick Mishkin who, much to the dismay of the Vice Chairman, is going back to Columbia University. I thought he had just arrived. Whether or not that is the case, we will miss you and we wish you well. I suspect that you... | 100 |
fomc | 1,997 | Move approval. | 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 | Questions for Peter? | 4 |
fomc | 1,997 | In the memo that presents some of the options for dealing with declining required operating balances at the Reserve Banks, you and Don Kohn addressed the topic of returning to lagged reserve requirements from the current contemporaneous reserve requirements regime. There was a reference in that document to the preparat... | 88 |
fomc | 1,997 | I would be happy to refer to Don and his staff on that. | 14 |
fomc | 1,997 | Board staff is working on a memorandum for Board consideration that proposes a return to lagged reserve accounting. The Board has not seen any of this or heard this discussed previously because we are still working on this issue at the staff level. I think there are two factors that make this a potentially opportune ti... | 324 |
fomc | 1,997 | As you know, this is an issue that has been debated at length at various times. We have had both regimes. We had contemporaneous reserves before the late 1960s, when we went to lagged reserve requirements. As we got into the monetary aggregates approach to policy, we shifted back to contemporaneous reserves. I think th... | 147 |
fomc | 1,997 | When we get there, why don't we bring it to the Committee as a subject for general discussion, presuming that something materializes out of what the staff is working on at the moment? | 38 |
fomc | 1,997 | I agree very much with what Ed Boehne just said. It would seem to be especially appropriate to discuss that in a situation where it is possible that M2 may be coming back on track. Lagged reserve accounting precludes the use of any sort of reserve operating instrument in my opinion, and such an instrument might be a mo... | 75 |
fomc | 1,997 | I would underscore that the paper, particularly the decision tree that shows the different options, is not intended to be technical or to bury this issue in the details. Don and I were trying to lay this out so you would see all the steps we think need to be gone through before you reach any of what we deem to be the i... | 149 |
fomc | 1,997 | I think President Broaddus is raising an interesting issue. If the M2 data eventually suggest that there may be some particular policy use for M2, the whole concept of reserves in the structure of monetary operations, especially in the context of the significant decline in required reserves, will become more than a tec... | 152 |
fomc | 1,997 | As you and President Broaddus remember, the reserve requirements are geared to Ml, and there are no reserve requirements on non-M1 deposit balances. | 30 |
fomc | 1,997 | I think that is precisely the issue in the sense that if we go back to M2 and stay with reserves on transaction balances, something is incoherent. At the moment, it doesn't matter all that much. But it would if we began to take the M2 cone seriously. Any other questions? | 60 |
fomc | 1,997 | I have one. I agree with the general thrust of the views that have just been expressed. One of the options on the decision tree would be to lower reserve requirements and increase the deposit base to which they apply. It would be exactly in that circumstance that I think the point the Chairman is making would be releva... | 229 |
fomc | 1,997 | Further questions for Peter? If not, would someone like to move ratification of the domestic operations? | 20 |
fomc | 1,997 | So moved. | 3 |
fomc | 1,997 | Thank you. Without objection they are approved. Let us move on now to the Chart Show. | 19 |
fomc | 1,997 | Thank you, Mr. Chairman. We will be referring to the packet of material titled "Staff Presentation to the Federal Open Market Committee." Dave Stockton, Ted Truman, and I will jointly share the honors this afternoon. [Statements--see Appendix.] | 49 |
fomc | 1,997 | Thank you, gentlemen. That was a very thorough evaluation. Questions for anybody? [Pause] I cannot believe it was that thorough! | 27 |
fomc | 1,997 | With regard to the table in the middle of chart 5 showing output gaps, could you give me the memo item for the United States, Mike? I assume it would be about 1.0 percent above potential for the fourth quarter of 1996. What was the fourth quarter of 1998 in the Greenbook? | 66 |
fomc | 1,997 | The Greenbook estimate for the fourth quarter of 1998 is 2.1 percent above potential. | 21 |
fomc | 1,997 | 2.1 percent and 1.0 percent roughly for the fourth quarter 1996? | 19 |
fomc | 1,997 | We have .8 percent above potential for the fourth quarter of 1996. | 16 |
fomc | 1,997 | Okay. With regard to my other question, it is obvious that what is happening at Boeing has a big impact on BFI and also on the export number. Are there any limits on their ability to produce? | 42 |
fomc | 1,997 | I think they purposely have chosen to stretch out deliveries, as they have done in the past, because they know a bust will inevitably follow the boom. | 30 |
fomc | 1,997 | To piggyback on the aircraft question, we really do not have a precise view of what is going on. I mentioned that the aircraft shipments have picked up over the last two quarters. The information that we have, where we have some slippage going forward, is that their foreign component is leveling off rather than continu... | 100 |
fomc | 1,997 | Of BFI? | 4 |
fomc | 1,997 | Yes, as best we can piece these things together. | 11 |
fomc | 1,997 | Thank you. | 3 |
fomc | 1,997 | Further questions? | 3 |
fomc | 1,997 | Just a quick question about the projected stock market correction. What is the real impact of that? How much does that negatively affect your GDP figures for next year? | 32 |
fomc | 1,997 | We have not quantified it, as I suggested in my remarks, but we think it will have a relatively modest negative effect with a lag on consumer spending in 1998. | 35 |
fomc | 1,997 | Are declining equity prices basically the major drag that you have embedded in your figures for next year? | 19 |
fomc | 1,997 | No. We anticipate that the slowing of activity will result primarily from some stock adjustments following the large increases in investment spending in recent years. | 27 |
fomc | 1,997 | On both the consumer and business sides? | 8 |
fomc | 1,997 | Right, in both consumer spending and business investment. | 10 |
fomc | 1,997 | Let me emphasize that this is partly a matter of the peculiarity of the timing. We really don't like to attempt to pin down the dimension, let alone the timing, of this adjustment. | 39 |
fomc | 1,997 | Right. | 2 |
fomc | 1,997 | But we had to do this. We have it starting essentially at the end of this year and continuing relatively steadily through 1998. Given the normal lags estimated for the wealth effects, we will not see a lot of the impact until the very end of the period and in 1999. That is why it does not loom so large. | 70 |
fomc | 1,997 | Anybody else? Incidentally, Mike Prell has indicated that you can have through Monday, July 7, for any revisions to your individual forecasts for the Humphrey-Hawkins report. President Broaddus. | 43 |
fomc | 1,997 | I have one quick question: Dave, on chart 15--I may be the only one in the room who had a little trouble following all of this--why does the nominal funds rate in that alternative unemployment targeting simulation have to go up more rapidly? I presume you are keeping employment constant while productivity is increasing... | 63 |
fomc | 1,997 | Yes, but the reason is that you need to raise rates earlier in that episode because you are trying to keep the unemployment rate constant. If you did not do that, the strength in demand actually would outweigh in some sense the increase in supply. There is a bigger effect in our models in terms of investment demand and... | 103 |
fomc | 1,997 | If there are no further questions, would somebody like to start the meeting discussion? President Hoenig. | 20 |
fomc | 1,997 | Thank you, Mr. Chairman. Economic activity remains strong in the Kansas City District, with only a few signs of slowing. Our directors and other business contacts report solid economic growth throughout the District. Retail sales have been robust and manufacturing remains quite healthy. Two strikes that I mentioned at ... | 537 |
fomc | 1,997 | President Parry. | 4 |
fomc | 1,997 | Mr. Chairman, Twelfth District economic growth has been vigorous thus far in 1997. Payroll employment expanded by 3 percent at an annual rate during the first four months of the year and probably in May as well. That rate is only slightly below last year's pace. The durable goods manufacturing sector has performed part... | 605 |
fomc | 1,997 | President Moskow. | 4 |
fomc | 1,997 | Mr. Chairman, economic conditions in the Midwest remain quite similar to those I reported at the May meeting. Our regional economy is still expanding at a modest rate, and District manufacturers and retailers continue to report that competitive pressures inhibit their ability to raise prices. Our manufacturing sector i... | 945 |
fomc | 1,997 | President Minehan. | 4 |
fomc | 1,997 | Mr. Chairman, the New England economy continues to expand. The annual rate of job growth now rather closely matches that of the nation as a whole, but within the region considerable state-by-state variation is evident. Massachusetts is now the fastest growing New England state, at least as measured by job growth, outst... | 1,447 |
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