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fomc | 1,997 | Thank you, Mr. Chairman. The rate of economic growth in the Second District has held fairly steady since the last meeting. The latest figures on payroll employment suggest a third-quarter acceleration in the pace of job creation, though the figures were held down a bit by the UPS strike. The job growth in New York and ... | 630 |
fomc | 1,997 | Governor Rivlin. | 4 |
fomc | 1,997 | Like Ed Boehne and a few others, I feel moved to say a few things about new and old paradigms. If one listens to the economic and financial press and sometimes to the conversation around this table, one gets the impression that there are only two possible explanations for what is happening at the moment. One is that th... | 1,340 |
fomc | 1,997 | Governor Meyer. | 3 |
fomc | 1,997 | My view of the economic outlook has changed rather significantly since the last meeting. At that time, it appeared that growth had slowed more sharply in the second quarter than now appears to have been the case and that growth might remain near its sustainable trend in the second half and into 1998. To be sure, the ri... | 1,046 |
fomc | 1,997 | Governor Phillips. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. The second-quarter slowdown was so shallow that we could easily have missed it. Consumer spending did slow to less than 1 percent, but we had an increase in inventory investment. Even with that increase, inventories are still not out of alignment. Growth so far in the third quarter seems to be ... | 731 |
fomc | 1,997 | Governor Kelley. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. As we head for coffee in the next couple of minutes, it seems to me that my notes may be a bit of a composite of what has been said around the table. As I began to focus on this meeting, I asked myself first and foremost "what is new?" The answer that came back is "so far, not much." The data s... | 233 |
fomc | 1,997 | Boston, too! | 4 |
fomc | 1,997 | With respect to financial indicators, one can find very little pressure in the yield curve or in interest rate levels. On the other hand, household wealth continues to rise and there is abundant liquidity in the economy. From the foreign side, there seems to be very little in the way of new pressure, and from the side ... | 410 |
fomc | 1,997 | On that, we will go for coffee. | 9 |
fomc | 1,997 | Mr. Kohn. | 5 |
fomc | 1,997 | Thank your, Mr. Chairman. The sustained strength in final demand since the last FOMC meeting and the staff projection of building inflation pressures suggest that the question facing the Committee remains whether, or perhaps when, to tighten the stance of policy. Prices in financial markets do not seem to embody this a... | 1,939 |
fomc | 1,997 | Thank you. Questions for Don? | 7 |
fomc | 1,997 | Don, you mentioned that a substantial slowing in the growth of M2 was necessary for such growth to be consistent with the staff forecast of nominal GDP in the fourth quarter. The Bluebook has M2 growth down to 4 percent in November and December. This suggests to me that the growth of overall commercial bank balance she... | 144 |
fomc | 1,997 | We have a modest deceleration in bank balance sheets in the fourth quarter. We do not have a major deceleration. Let me start with the bank balance sheet picture. We do not find the relationship between those balance sheets and money growth to be very tight. Certainly, the relationship between M2 growth and bank balanc... | 378 |
fomc | 1,997 | Your answer says that we can get a slowing in the broad money measures without a slowing in the growth of aggregate bank credit. You also suggested in your earlier remarks that if we do not see the slower growth of, say, M2 that you are now projecting, that might be evidence that we are not getting the slowing in nomin... | 90 |
fomc | 1,997 | We track M2 growth to the projected increases in nominal GDP. The slowing in the fourth quarter in M2 growth arises largely from our sense that there has been a lot of M2 built up over the months of the third quarter. There is enough to finance the nominal GDP that is forecast for the fourth quarter. In fact, there is ... | 189 |
fomc | 1,997 | Are there any other questions for Don? [Pause] If not, then let me get started. I think the incoming indicators are pointing more clearly to underlying trends in this economy, although they are scarcely adding to our understanding of these trends. Let me start with what I think is the most interesting event of recent w... | 2,522 |
fomc | 1,997 | Mr. Chairman, I very much believe that what you have recommended is what we should do, and let me briefly give some reasons. The factors leading to a combination of good economic growth and ever better price performance--a firm dollar, restrained wage demands, and the excellent performance of health benefit costs--clea... | 486 |
fomc | 1,997 | Governor Rivlin. | 4 |
fomc | 1,997 | I agree with the policy recommendation and also with Bill McDonough's notion that we should be talking more about why we think the risks are on the upside. That said, however, I think I am a little less convinced than you that we will have to move in November or December. | 58 |
fomc | 1,997 | I am saying there is a 50/50 probability; what are you saying? | 17 |
fomc | 1,997 | All right, you said 50/50; I heard something stronger than 50/50. I would say the odds are perhaps a little less than that. That is because I am persuaded that we are dealing with a much less inflation-prone economy than we were, and I am a little less persuaded by the biology argument in part because it depends on a f... | 84 |
fomc | 1,997 | No, it depends on a fixed population. | 9 |
fomc | 1,997 | All right, it depends on a fixed population. | 10 |
fomc | 1,997 | And fixed immigration. | 4 |
fomc | 1,997 | Okay, but that is what I am questioning. If some of our labor force is in Bombay or Mexico, and we have much more flexibility in outsourcing and even in calling on high-skilled people in distant places, then this argument is a little less overwhelming. I guess I also have been a little more skeptical about the job inse... | 157 |
fomc | 1,997 | Could I add a comment? Just a brief one? | 11 |
fomc | 1,997 | Sure. | 2 |
fomc | 1,997 | We have been doing a good deal of work at our Bank on where inflation stems from on the wage side, and it is not in the goods-producing industries. Therefore, the labor force that does exist in Bombay and Mexico does not help to explain our wage behavior because inflation comes from the services part of the economy. | 63 |
fomc | 1,997 | The Bombay example involves services. | 6 |
fomc | 1,997 | But for most services there is no import competition. | 10 |
fomc | 1,997 | The Bombay example relates basically to the use of computer software. It involves very few people. | 18 |
fomc | 1,997 | The portion of the workforce that is most likely to give us the inflationary pressure, at least on the basis of our analysis, is in the services areas where there is no possibility of competition with imported services. That pressure initially kicks off in the wages of service workers, but with a not very long lag it s... | 77 |
fomc | 1,997 | President Parry. | 4 |
fomc | 1,997 | Mr. Chairman, given uncertainties about the magnitude of a possible supply shock, I am somewhat more comfortable with data and forecasts of nominal GDP growth than with forecasts of the split between real GDP growth and inflation. Nominal GDP has grown moderately over the past year and is projected to slow in both our ... | 175 |
fomc | 1,997 | President Hoenig. | 4 |
fomc | 1,997 | Mr. Chairman, without putting odds on what we need to do at the next meeting, I think I understand where you are coming from, and I can support your recommendation. | 35 |
fomc | 1,997 | President Boehne. | 5 |
fomc | 1,997 | I agree with your recommendation, and I have an open mind about what will occur in November and December. | 21 |
fomc | 1,997 | President Moskow. | 4 |
fomc | 1,997 | I agree with your recommendation, Mr. Chairman. I do think that the probability is higher that we will have to move in November than I thought it was, say, four or so weeks ago. I agree with President McDonough that it is very important for us to alert the American people to our thinking. I know this is a delicate matt... | 125 |
fomc | 1,997 | I thought I was doing that in the July Humphrey-Hawkins testimony. It turned out that instead of the bond market falling by up to a point or so, as I thought it would after that testimony, it went in the other direction. The market's response depends on what it wants to hear. One of the things I have learned is that se... | 98 |
fomc | 1,997 | I thought you were very effective in sending a message earlier this year. | 14 |
fomc | 1,997 | Yes, I think the March message worked well. President Guynn. | 14 |
fomc | 1,997 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 1,997 | President Melzer. | 4 |
fomc | 1,997 | Thanks, Alan. I would prefer alternative C but I could accept your recommendation. The stage setting is probably very important, although I think we need to recognize that at some point it may be only actions that will get the message across. I think, as was clear in my comments today and earlier, that the odds of our ... | 185 |
fomc | 1,997 | President Stem. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. I, too, accept your recommendation largely because I think there is still sufficient uncertainty to warrant caution. While it is tempting to take the attitude that we ought to sit back and enjoy this economy, I see a danger in that. The danger is that we will wait too long before acting, as has... | 97 |
fomc | 1,997 | Governor Meyer. | 3 |
fomc | 1,997 | Mr. Chairman, I agree with you and I endorse all elements of your policy recommendation: no change in the funds rate today; maintaining an asymmetric directive; and, importantly, recognition that there is an increased possibility, if not a presumption, that a tightening move will be justified in November, assuming the ... | 315 |
fomc | 1,997 | President Broaddus. | 5 |
fomc | 1,997 | Mr. Chairman, I can accept your recommendation. I also agree strongly with the thrust of your comment that the probability of having to tighten in November has risen significantly. I hope that you will make some public comment, and I agree with Bill McDonough and others that doing so would be productive. I recognize th... | 230 |
fomc | 1,997 | President Minehan. | 4 |
fomc | 1,997 | I, too, am supportive of your proposal, Mr. Chairman. I also would have supported a small preemptive move at this meeting, but I recognize that the lack of a real smoking gun in terms of inflation, either existing or in the pipeline or guessed about, makes that sort of recommendation a bit difficult to entertain at thi... | 380 |
fomc | 1,997 | President Jordan. | 3 |
fomc | 1,997 | I think what is going on in the labor markets is a fascinating subject, one that I wish I understood better. I also wish that our friends on the European continent understood a lot better than I do what is going on in our labor markets. It does tell us a lot about the distribution of the current prosperity and about ho... | 417 |
fomc | 1,997 | Governor Kelley. | 3 |
fomc | 1,997 | I concur, Mr. Chairman. | 7 |
fomc | 1,997 | Governor Phillips. | 3 |
fomc | 1,997 | I also agree with "B" asymmetric. The strength of the economy makes the asymmetric directive appropriate. In view of the recent inflation experience, I think there is some time to let things develop before removing the punch bowl. | 44 |
fomc | 1,997 | President McTeer. | 5 |
fomc | 1,997 | I agree with your recommendation today. I would keep an open mind about the next meeting and wait and see what the data show and not be praying for bad news so we have an excuse to do something. With regard to 1994, I do think it was a very successful preemptive strike experience. Two fundamental differences between no... | 146 |
fomc | 1,997 | That explains why we have not moved since March. Okay, let's have a vote on "B" asymmetric after you have read the directive. | 28 |
fomc | 1,997 | I will be reading from page 13 of the Bluebook: "In the implementation of policy for the immediate future, the Committee seeks conditions in reserve markets consistent with maintaining the federal funds rate at an average of around 5-1/2 percent. In the context of the Committee's long-run objectives for price stability... | 130 |
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 | The next meeting is on Wednesday, November 12. | 11 |
fomc | 1,997 | I would like to welcome Governors Ferguson and Gramlich to their first meeting and offer a preliminary farewell to President Melzer. We will do the farewell more officially at the next meeting. | 36 |
fomc | 1,997 | Thanks, Alan. | 4 |
fomc | 1,997 | Why don't we get started. I request that someone move to approve the minutes. | 16 |
fomc | 1,997 | So move. | 3 |
fomc | 1,997 | Without objection. Peter Fisher. | 6 |
fomc | 1,997 | Thank you, Mr. Chairman. I will be referring to the package of charts that should be in front of you.' It has a Class I cover and begins with a color chart showing 3-month deposit rates. Today I will be going over four distinct subjects. To give you a roadmap: First, I will discuss market developments in general, focus... | 2,329 |
fomc | 1,997 | 250 basis points? | 4 |
fomc | 1,997 | Excuse me I should have said 25 basis points. I am very sorry. I'm trying to catch up with everything that happened overnight. On that note, let me turn to domestic open market operations and try to get my numbers right. On the fifth page, there are two panels illustrating developments in the federal funds market. The ... | 2,601 |
fomc | 1,997 | I must say that your endeavor to inform the primary dealers of your likes or dislikes is creating a franchise value for them whether you like it or not. I think the presumption that they are primary dealers and you are in fact making that an issue makes it quite impossible to maintain simultaneously that there is no fr... | 68 |
fomc | 1,997 | I completely agree with you. It is a dilemma, and I think we are stuck with that dilemma. I personally would rather take a hard look with the Treasury on whether the primary dealer system makes sense in terms of underwriting Treasury debt issuance. The Treasury still feels strongly, as it has for many years, that the e... | 231 |
fomc | 1,997 | You mentioned that the yuan was not an attackable currency, which I have always assumed to be the case largely because it is an essentially illiquid, controlled, and blocked currency. Can you conceive of any scenario whereby there could be an international attack on that currency? I presume that would require a free ma... | 82 |
fomc | 1,997 | My colleagues and I have thought about that, and we have not come up with a way that might be done directly. I think there are assets that could be sold-- | 34 |
fomc | 1,997 | My guess is that that is the way it would happen. In fact, a country can always experience the problem of domestic capital flight, of which there is a substantial amount in China--on the order of $10 billion a year. Another way that domestic residents can attack the currency is through classical, if I may call it that,... | 130 |
fomc | 1,997 | I have been out of contact. What happened in the financial markets in Brazil and Argentina yesterday? | 19 |
fomc | 1,997 | Not much happened in Brazil after they announced their program. Rates were down marginally yesterday; stock markets were flat and are down a little today. | 29 |
fomc | 1,997 | Was it the same in Argentina? | 7 |
fomc | 1,997 | Yes, both cases. | 5 |
fomc | 1,997 | President Minehan. | 4 |
fomc | 1,997 | Just a question. If all the primary dealers reacted well to your counseling, Peter, what would be the impact on our operations? What benefit would we see as a result of that? | 37 |
fomc | 1,997 | We would get better prices. We would earn more for the U.S. taxpayer. We would have more flexibility in our operations the more propositions we received. I very much hope to avoid the situation that we had in April when we had the large miss in forecasting Treasury tax flows and an insufficient volume of propositions f... | 143 |
fomc | 1,997 | Looking at your first chart on primary dealer performance in Desk financing transactions, that dotted line for the median is -1.8 basis points. Your desire is to move that up to the stop-out rate? | 41 |
fomc | 1,997 | No. In this case, what I would like to see is movement of the median volume line to the right and a cluster of dealer performance around the intersection of the two medians. Where the auction falls vis-a-vis the stop-out rate is really a matter of how much we are doing because we want more propositions than we can use.... | 238 |
fomc | 1,997 | So, you would like to move that intersection both up and out? | 14 |
fomc | 1,997 | Out more than up is what I would expect. | 10 |
fomc | 1,997 | Governor Rivlin. | 4 |
fomc | 1,997 | This question reflects my lack of understanding, but are you creating any legal problems for us here? If a team is dropped from the league, can they sue the commissioner? | 34 |
fomc | 1,997 | I referred earlier to the paper that we put out in February 1992 to establish the current ground rules. That paper indicated that the arrangements between us and the dealers were business relationships and that we could terminate an individual arrangement if no business relationship existed. There are a lot of lawyers ... | 175 |
fomc | 1,997 | You are a businessman, but they think of you as the government. | 14 |
fomc | 1,997 | I have been working very hard for a couple of years in every meeting I have had with the primary dealers to remind them that ours is a business relationship and that we want them to treat us as a valued customer. I gave a speech about this business relationship to the Bond Market Association in Phoenix in which I empha... | 78 |
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