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fomc | 1,997 | Call the roll, please. | 6 |
fomc | 1,997 | Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus No Governor Ferguson Yes Governor Gramlich Yes President Guynn Yes Governor Kelley Yes Governor Meyer Yes President Moskow Yes President Parry Yes GovernorPhillips Yes Governor Rivlin Yes | 49 |
fomc | 1,997 | Thank you very much. Our next meeting is on December 16th. We will now adjourn for lunch. | 23 |
fomc | 1,997 | I would first like to welcome our temporary new Bank representative, LeGrande Rives. | 17 |
fomc | 1,997 | Thank you, Mr. Chairman. | 7 |
fomc | 1,997 | Also, sadly, this is Charlie Siegman's last meeting after several generations of watching the ups and downs of these proceedings. We are going to miss you, Charlie. | 33 |
fomc | 1,997 | Thank you very much. On my list of things from the Federal Reserve that I will look back to, this is one of the activities that I will miss very much. | 34 |
fomc | 1,997 | When all of a sudden we begin to see a hole in the staff analysis, we will infer its cause. [Laughter] Would somebody like to move approval of the minutes of the November 12 meeting? | 42 |
fomc | 1,997 | So move. | 3 |
fomc | 1,997 | Without objection, they are approved. Mr. Fisher, you have the floor. | 16 |
fomc | 1,997 | Thank you, Mr. Chairman. I will be referring to the package of colored charts, which you should find in front of you. On the first page are charts covering the same information we have shown in the past, but we have changed the source of the data for the current 3-month deposit rates. Traders have persuaded me that the... | 2,172 |
fomc | 1,997 | The Southeast Asian exchange rate patterns imply, as you say, that a lot of market participants are overshooting the fundamentals in a certain sense. It is difficult to avoid that sort of conclusion. We cannot get a 40 or 50 percent decline in an exchange rate in a short period of time under any realistic assumptions c... | 195 |
fomc | 1,997 | They exist. They are quite thinly traded, and I'm not sure how much confidence people put in them, but they are there. They are not the kind of market instruments that one can click on a Reuters page and see. | 46 |
fomc | 1,997 | But the question is whether they give us at least a partial answer. If we are getting extreme disequilibrium, the deep forward positions ought to be closer to minus 10 or minus 15 as distinct from minus 40. And if we cannot infer it from these other positions, we could in principle handle the credit risk in this situat... | 193 |
fomc | 1,997 | Are you not just as likely to see higher short-term interest rates, so in fact it would go the other way? The forward foreign exchange rates would be more depressed. You use the word position, which is quite different-- | 45 |
fomc | 1,997 | I'm thinking of 2-year forwards, for example. | 11 |
fomc | 1,997 | I don't think you can find 2-year forwards in these markets. If they existed, they would tend to have higher interest rates and would be more depressed than the current spot rates. | 37 |
fomc | 1,997 | I think the problem is that we do not have a time horizon where one ought to find fundamental value. There is not enough confidence in markets that one would want to have a contract with a maturity of that length. That is a long duration exposure to take on a currency that is declining so rapidly now. | 61 |
fomc | 1,997 | Before the Southeast Asian markets collapsed, we used to talk about the ability of the Koreans to fund long-term debt more readily than short-term, which goes against everyone's view of the way the world works. Was that true then or was it just an illusion? | 52 |
fomc | 1,997 | I don't know. I have not heard that story. | 11 |
fomc | 1,997 | If it was true, it would be an indication that there is a premium in a longer forward exchange rate. This is a crucial question because the adjustment is either going to implode down to minus 80 percent or it is going to run into downside resistance. | 51 |
fomc | 1,997 | Peter Fisher may want to comment, but I think it is reasonable to say that many people want to cover their positions. There are a lot of different ways of covering them. Some covering can be done in the spot market; some in the forward market; some through borrowing; and some through lending. How it manifests itself in... | 117 |
fomc | 1,997 | I think what we are seeing is the implosion of the intermediation process in these exchange markets. The exchange markets for the won and the baht have disappeared. There are not a lot of people who are excited about participating in those markets. | 50 |
fomc | 1,997 | It will be fascinating to watch what happens. It's like the tide coming in for the first time in 20 years, and we find all the junk on the shore that we didn't know existed. This is partly what is going on in the financial system. | 51 |
fomc | 1,997 | Also, if and when confidence is restored or when greed overcomes fear, people may suddenly find that they are much better off to keep a lot of those positions that they now want to get out of. | 41 |
fomc | 1,997 | If this thing turns, it can turn on a dime. The trouble is, it cannot turn on a baht. [Laughter] President Parry, bail me out! | 36 |
fomc | 1,997 | Neither won! | 3 |
fomc | 1,997 | A question about Yamaichi: It was closed on the 23rd of November, and I guess they ceased being a primary dealer on December 4th. Could you talk a little about what our financial relationships with them were just before the 23rd and then between the 23rd and the 4th? | 65 |
fomc | 1,997 | We had been monitoring their trading exposure to us rather carefully for many, many months. We had an arrangement where if they needed to elevate their demand for financing in our RP operations from the agreed routine amount, they would call Sandy Krieger and give us some advance notice and information to enable us to ... | 130 |
fomc | 1,997 | Yes. | 2 |
fomc | 1,997 | Anyone else? Would somebody like to move to ratify the Domestic Desk operations? | 16 |
fomc | 1,997 | Move approval. | 3 |
fomc | 1,997 | Thank you. Without objection, they are approved. This is a very short agenda. Messrs. Prell and Truman please. | 26 |
fomc | 1,997 | Thank you. Anticipating that, as last month, the focus of your interest this morning is on the international side, I will try again to be brief. I thought, however, that I would offer a few remarks on some of the tougher calls we had to make on the domestic side of our forecast--namely those relating to the outlook for... | 1,240 |
fomc | 1,997 | Our message about the international economy and the external sector of the U.S. economy is straightforward and easily summarized: We have a weaker outlook for net exports, primarily as a consequence of the further deterioration of economic and financial conditions in Asia. While I am tempted to stop at this point and t... | 2,027 |
fomc | 1,997 | Thank you. Questions for either gentleman? | 8 |
fomc | 1,997 | Ted, on the worse case scenario, do you have any sense of what probability you would put on that given what you know now? | 27 |
fomc | 1,997 | I am never quite sure how to answer those questions about probabilities, but I would guess a fifth or something like that. How seriously should we take that scenario? I would say moderately seriously. This is not a meltdown scenario because it assumes that action will be taken by others to prevent a meltdown. | 59 |
fomc | 1,997 | President Moskow. | 4 |
fomc | 1,997 | I was going to ask Al's question, but I will ask a follow-up. Is there a better case? | 23 |
fomc | 1,997 | Yes, I think there is. That's partly because we are in December and this crisis has been going on for some time. As Peter said, we have the sense of a flood rather than a severe rainstorm. The psychology is pretty gloomy, though one might say it has been slightly less gloomy in the last couple of days. It is slightly l... | 196 |
fomc | 1,997 | When you say it is not symmetrical, do you mean the better case has a lower probability? | 19 |
fomc | 1,997 | No, I would say the better case has the same probability, but it probably is not as good as the worse case is bad. We have a somewhat skewed distribution in that regard. | 38 |
fomc | 1,997 | President Parry. | 4 |
fomc | 1,997 | Ted, I have a question about China and Hong Kong. In early 1994, China abolished its official foreign exchange rate, and I guess that produced a depreciation of about 40 percent in their currency. That obviously had an adverse impact on the relative competitive position of Southeast Asian countries. The real appreciati... | 178 |
fomc | 1,997 | That possibility certainly is incorporated in the worse case scenario we have laid out, though the effect may not be as big as some would argue it could be. Let me go back to one of your premises. Although there was a 40 percent adjustment in China's official exchange rate in 1994, most of China's trade--some 80 percen... | 575 |
fomc | 1,997 | It seems to me that, without getting into specific probabilities, if one were constructing another worse case, Brazil would be an interesting dimension to add to it. | 31 |
fomc | 1,997 | It is in this scenario; it just may not be in the outline that we sent to you. We assumed that the Hong Kong peg goes and, as I remember, that economic growth in China drops from essentially 4 or 5 percent to zero or close to it next year and similarly in Hong Kong. That aspect of the scenario could be worse, if you wa... | 115 |
fomc | 1,997 | Okay, thank you. | 5 |
fomc | 1,997 | Any further questions for these two gentlemen? If not, do you want to start the go-around? | 20 |
fomc | 1,997 | Thank you, Mr. Chairman. I will not comment to any degree on the economy of the Second District, which actually is a little better than it was at the time of our last meeting, nor on the national economy because we agree essentially with the viewpoint of the Greenbook. Since I have spent a little more than four decades... | 1,759 |
fomc | 1,997 | President Parry. | 4 |
fomc | 1,997 | Mr. Chairman, the pace of economic growth in the Twelfth Federal Reserve District remained solid in recent months, although down slightly from its trend during the first half of the year. Despite the slowdown, economic activity is expanding more rapidly in most District states than in the nation as a whole. Employment ... | 824 |
fomc | 1,997 | President Moskow. | 4 |
fomc | 1,997 | Mr. Chairman, economic conditions in the Seventh District are quite similar for the most part to what I reported at our last meeting, but the Asian situation has left a sense of greater uncertainty about the outlook. In terms of consumer spending, retailers have used the terms "sluggish" and "soft" to describe recent s... | 912 |
fomc | 1,997 | President Broaddus. | 5 |
fomc | 1,997 | Thank you, Mr. Chairman. Overall, it appears that aggregate demand remains relatively strong in our region, although reports are a little more mixed than they were a month ago. Regarding a couple of the details, general retail and service-sector activity picked up sharply in November according to our latest monthly sur... | 1,082 |
fomc | 1,997 | President Boehne. | 5 |
fomc | 1,997 | Thank you, Mr. Chairman. The economy in the Philadelphia District is operating at a high level, with most sectors doing well. Labor markets, as elsewhere, are very tight, but inflation remains subdued despite some upward pressures on compensation. We talk about the tight labor markets, but business people are doing a l... | 801 |
fomc | 1,997 | President Guynn. | 4 |
fomc | 1,997 | Thank you, Mr. Chairman. The Sixth District economy continues to expand at a moderate rate. Tourism remains a real strength for us, with flights to Florida already booked up earlier and faster than last year and with above-average attendance at tourist attractions for the holiday period. In particular, the influx of to... | 909 |
fomc | 1,997 | President McTeer. | 5 |
fomc | 1,997 | The economy in the Dallas District continues to grow considerably faster than the nation's. Growth has remained broad-based through all segments of the private sector. The strongest employment growth has been in oil and gas extraction, followed by the finance, insurance, and real estate sectors. The only industry runni... | 947 |
fomc | 1,997 | President Minehan. | 4 |
fomc | 1,997 | Mr. Chairman, the New England region continues its recent trend of solid growth, low unemployment relative to that for the nation, tight labor markets, but only moderate price and wage pressures. There are exceptions in specific job categories where workers are in extremely short supply, especially in information techn... | 944 |
fomc | 1,997 | President Stem. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. The District economy continues to grow at a healthy pace as usual. I will not dwell on much of that in detail; it is not an unfamiliar story. We recently had a couple of meetings with business leaders, and I would say the general information gleaned at those meetings indicated no major surprise... | 462 |
fomc | 1,997 | President Hoenig. | 4 |
fomc | 1,997 | Thank you, Mr. Chairman. The economy in the Kansas City District continues to do well. Reports from our directors and other contacts suggest a healthy business environment throughout the region. Manufacturing activity remains strong, especially in our durable goods sector. Our manufacturing employment has grown about 1... | 697 |
fomc | 1,997 | Governor Rivlin. | 4 |
fomc | 1,997 | I think it was brave of the staff to produce a Greenbook forecast at all. The increased uncertainty about world events in the short interval between meetings certainly has widened our confidence intervals quite a lot, even though we don't know exactly what our confidence intervals are! My own hunches are that the domes... | 729 |
fomc | 1,997 | Governor Phillips. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. What a difference a month makes! The stock market has recovered from its 500 point decline. The economy seems to be marching ahead. We have an incredible labor market and generally benign aggregate inflation, although there is quite a split between inflation rates in the goods and the services ... | 761 |
fomc | 1,997 | Governor Ferguson. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. As we meet today, both international and domestic developments give us obvious food for thought. I believe, as others do, that our watchwords at this point should perhaps be a "cautious" and maybe even a "nervous" wait-and-see stance. The trend of the domestic economy, as others have said, is c... | 789 |
fomc | 1,997 | Governor Meyer. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. The forecast to which policy must respond is now being shaped by three powerful forces. The first is the strong cyclical upturn over the last two years. The second is the diverse set of factors--some combination of temporary influences and longer-lasting structural changes--that have restrained... | 1,206 |
fomc | 1,997 | Governor Kelley. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. At our November meeting, at least some of us were thinking hard about tightening policy in the face of very strong economic growth, but we were deterred from doing so by the problems of Asia. The Asian turbulence, the severity of which was and still is difficult to judge, introduced major uncer... | 334 |
fomc | 1,997 | President Jordan. | 3 |
fomc | 1,997 | Thank you. Last week we held a joint meeting of our three boards of directors. I had asked our directors to come to the meeting to convey their own views and those of other companies or organizations with which they confer. I asked them in particular to compare how 1997 was now finishing in relation to their expectatio... | 1,540 |
fomc | 1,997 | Governor Gramlich. | 4 |
fomc | 1,997 | Thank you, Mr. Chairman. At the last meeting, I felt that from the standpoint of domestic considerations alone, it was time to raise the funds rate. I was dissuaded from actually voting to do so by the worrisome situation in Southeast Asia. While I still favor no change this month, my reasoning has changed. On the one ... | 457 |
fomc | 1,997 | President McTeer, you wanted to add a few points. | 13 |
fomc | 1,997 | I will not insist on doing it before the break unless you want to do that. I want to follow up on the Vice Chairman's parable of the meadow and the precipice. | 37 |
fomc | 1,997 | Better to do it now. | 6 |
fomc | 1,997 | Okay. He did not mention the role of the IMF, and I thought I would ask him about that and you, Mr. Chairman, as well. I know that the IMF does a lot to promote movement toward market mechanisms in command economies, and they do a lot to bring government policymakers out of an attitude of denial. But it also seems that... | 197 |
fomc | 1,997 | I think the IMF has pulled back a good deal from some of its previous statements. In addition, there has been a lot of talk suggesting that implicit in the IMF agreement with Korea is a 3 percent growth limit. Such a limit does not exist. There is a series of recommendations with respect to policy, which essentially re... | 408 |
fomc | 1,997 | Thank you. | 3 |
fomc | 1,997 | First Vice President Rives, do you want to add anything to our discussions? | 16 |
fomc | 1,997 | Nothing that has not already been said, Mr. Chairman. Thank you. | 15 |
fomc | 1,997 | Then, let us break for coffee. | 8 |
fomc | 1,997 | Mr. Kohn. | 5 |
fomc | 1,997 | Thank you, Mr. Chairman. The Committee's decisions at this meeting, with respect both to its immediate posture in reserve markets and to the symmetry or asymmetry in its directive, entail weighing actual evidence of strong domestic economic activity against the prospective effects on the U.S. economy of financial and e... | 1,841 |
fomc | 1,997 | Thank you. Questions for Don? If not, let me warn of our talking about the "worst" case or "worst" around-the-world scenario because everyone here can contemplate a case, which is far more negative than the so-called "worst" case. | 55 |
fomc | 1,997 | Ted Truman, to his credit, did not say "worst" case. He referred to a "worse" case. | 26 |
fomc | 1,997 | This time we did it right; we did not call it "worst!" [Laughter] | 20 |
fomc | 1,997 | Oh, "worse" case. Sorry about that. There is a "worst" case, but I don't even want to contemplate it. There is not terribly much I can add with the exception of one area that I think has not been fully addressed in our deliberations today. We are looking at a November CPI increase of 0.1 percent. In prior months, the c... | 1,118 |
fomc | 1,997 | He said, "God, make me pure, but not yet." | 14 |
fomc | 1,997 | I didn't want to say the first part of that! [Laughter] There is something going on here that we have not observed in decades, and maybe decades is too short an interval. I was startled by this morning's CPI report. We cannot keep getting such numbers and continue to say that inflation is about to rise. As we keep proj... | 2,006 |
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