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fomc | 1,998 | Don, what can you say about the GDP path associated with your first long-run alternative? What kind of output loss is associated with that path to virtual price stability? | 33 |
fomc | 1,998 | You can see that by looking at the two lines showing the rate of unemployment. We have a sacrifice ratio of 2-1/2 over 5 years. So, in order to get the inflation rate down by 1 percentage point relative to the baseline, you need to hold the unemployment rate above the NAIRU for 21/2 point years, or 1 point for 2-1/2 ye... | 106 |
fomc | 1,998 | One can do the mental calculations. | 7 |
fomc | 1,998 | Right. In the price stability alternative, GDP in the years 2001, 2002, and 2003 is growing about 1-1/4 to 1-1/2 percent less rapidly than in the baseline. In those years we have baseline GDP growing at rates of 2 to 2-1/2 percent. So, we never get a recession in this alternative strategy. | 82 |
fomc | 1,998 | It comes very close. | 5 |
fomc | 1,998 | It comes really close. Growth has to be slow enough to raise the unemployment rate above the NAIRU. We already have in the staff forecast a growth in output that is below potential and that has the effect of getting the unemployment rate up. You have to have a number of more years of that in the virtual price stability... | 67 |
fomc | 1,998 | Other questions? If not, let me get started on the policy issue. To repeat what we heard around this table yesterday, the key to the economic outlook and to our policy stance is very clearly how we evaluate the tsunami of the Asian crisis. It is rolling across the Pacific and the question is when it will get here and h... | 462 |
fomc | 1,998 | People will not see it in the transcript for five years! | 12 |
fomc | 1,998 | I have said that in disappearing ink for those who are taking notes! In any event, it is quite interesting. We basically are seeing the shadow of this Asian weakness. We have seen it in the price of oil, where demand clearly has slipped quite measurably. We are seeing it in copper, in aluminum, in gold, and even in som... | 1,497 |
fomc | 1,998 | I support your recommendation, Mr. Chairman. Your logic is indisputable. | 15 |
fomc | 1,998 | Vice Chairman. | 3 |
fomc | 1,998 | I support your "B" recommendation as well, Mr. Chairman. In my view, the right thing to do clearly is to remain very much on alert and not tie our hands in either direction. So, I think the correct policy is no change and symmetry. | 53 |
fomc | 1,998 | Governor Rivlin. | 4 |
fomc | 1,998 | I strongly support "B" symmetric as the best policy at the moment. | 15 |
fomc | 1,998 | President Broaddus. | 5 |
fomc | 1,998 | Mr. Chairman, I continue respectfully to think that the dominant risks are on the upside. What worries me is that if these risks are verified as we go forward, we will indeed get what you referred to a minute ago as a stark demand situation where we do not have very many good choices. So, I still favor alternative "C" ... | 107 |
fomc | 1,998 | Governor Kelley. | 3 |
fomc | 1,998 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 1,998 | President Parry. | 4 |
fomc | 1,998 | Mr. Chairman, I certainly support the recommendation for leaving the funds rate unchanged. But I must admit that I am still impressed by the fact that we do not see any signs whatsoever of a slowdown in the domestic expansion. This combined with the fact that we have such tight labor markets suggests to me that asymmet... | 73 |
fomc | 1,998 | President Moskow. | 4 |
fomc | 1,998 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 1,998 | Governor Meyer. | 3 |
fomc | 1,998 | Mr. Chairman, I support your recommendation. I want to say a word about what I think a symmetric directive means. Sometimes, one thinks of it as meaning that there is an equal probability that the next policy move might be up or down. I do believe, given the tight labor markets and the continuing strength of demand, th... | 400 |
fomc | 1,998 | Governor Ferguson. | 3 |
fomc | 1,998 | Mr. Chairman, I support your recommendation. Yesterday, I spoke a bit about risks and the fact that we are risk takers. I think we are taking reasonable risks by waiting to see exactly what happens. We need time to observe the strength of the factors that will be exerting an impact on both sides of the economy. The oth... | 191 |
fomc | 1,998 | President Stem. | 3 |
fomc | 1,998 | I agree with your recommendation as well. I also want to endorse the comments made by President Broaddus and Governor Meyer. They were implicit in some of Don Kohn's comments as well. Now that inflation has come down a good deal, I think it is important that we focus more specifically on what we view as our price objec... | 122 |
fomc | 1,998 | Of course, what has happened to us is that the cost of lowering inflation that we always presumed to be negative has turned out to be positive. We have been given a bonus that we did not earn. The question is, do we make good use of it or do we dissipate it? That may well be the usefulness of trying to focus on where w... | 151 |
fomc | 1,998 | I very much favor your recommendation, Mr. Chairman. I agree it would be useful to revisit our discussions about inflation even though we have had many of them without coming to any hard conclusions. Maybe it will be more productive this time in the sense that we will have a longer period of low inflation to observe. P... | 180 |
fomc | 1,998 | We have to be careful. The preemptive move that we made in early 1994 occurred on one of those very rare occasions when we could actually see that the funds rate was fundamentally out of line and it was dangerous to keep it there. We did not know to what level the funds rate ultimately would need to go, but we knew the... | 105 |
fomc | 1,998 | That is my worry. | 5 |
fomc | 1,998 | It is one thing to say that in principle we are going to be preemptive. Having done so successfully, we may be tempted to say that this is like shooting fish in a barrel. The trouble, unfortunately, is that the barrel is a large ocean and the fish are minnows! [Laughter] | 63 |
fomc | 1,998 | Yes, exactly! | 4 |
fomc | 1,998 | Governor Phillips. | 3 |
fomc | 1,998 | I support your recommendation of "B" symmetric. | 10 |
fomc | 1,998 | President McTeer. | 5 |
fomc | 1,998 | I, too, support "B" symmetric. | 10 |
fomc | 1,998 | President Hoenig. | 4 |
fomc | 1,998 | Mr. Chairman, I support your recommendation. I think it is interesting that we are in a period when we are benefiting from a productivity supply shock and wondering if it is wearing off, and at the same time we are waiting for a demand shock from Asia and wondering how hard it is going to hit the economy. I think that ... | 85 |
fomc | 1,998 | President Guynn. | 4 |
fomc | 1,998 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 1,998 | President Jordan. | 3 |
fomc | 1,998 | With the obvious advantage of some hindsight, I now think the thrust of monetary policy in 1997 was more expansionary than I thought at the time, and it became progressively more expansionary as we went through the year. There is an irony in the way we now look at the numbers and also in how we communicate them. A favo... | 513 |
fomc | 1,998 | Governor Gramlich. | 4 |
fomc | 1,998 | Mr. Chairman, I support your recommendation of "B" with symmetry. Just to make a few points about it, the risks are large on either side, but they are very different and they are very hard to figure out. So, it is difficult for us to be preemptive right now, but that is fine and I agree that we should wait and see. I t... | 285 |
fomc | 1,998 | First Vice President Rives. | 6 |
fomc | 1,998 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 1,998 | Let's have a roll call on "B" symmetric. | 11 |
fomc | 1,998 | The wording is on page 21 of the Bluebook, starting at the bottom of the page: "In the implementation of policy for the immediate future, the Committee seeks conditions in reserve markets consistent with maintaining the federal percent. In the context of the Committee's funds rate at an average of around 5-1/2 long-run... | 135 |
fomc | 1,998 | Call the roll. | 4 |
fomc | 1,998 | Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Ferguson Yes Governor Gramlich Yes President Hoenig Yes President Jordan Yes Governor Kelley Yes President McTeer Yes Governor Meyer Yes President Minehan Yes Governor Phillips Yes Governor Rivlin Yes | 47 |
fomc | 1,998 | Our next meeting is on March 31. As I indicated yesterday, revisions to forecasts are due to Mike Prell by Monday, February 9. | 30 |
fomc | 1,998 | Welcome, everybody. I especially want to welcome back an old colleague, Bill Poole. I did not realize that the last time he sat in this room was 25 years ago. | 37 |
fomc | 1,998 | I was sitting back there along the wall. | 9 |
fomc | 1,998 | It has taken 25 years to move from there to here? [Laughter] | 17 |
fomc | 1,998 | Baby steps. | 3 |
fomc | 1,998 | Well, that's the pleasant news. The less pleasant news is that both Joe Coyne and Larry Promisel, who have been fixtures in this room and around here for a very long time, probably are attending their last meeting. The agenda is fairly routine today, as you well know, and I would like to start off by requesting approva... | 84 |
fomc | 1,998 | So moved. | 3 |
fomc | 1,998 | Without objection. You all have received a Report of Examination of the System Open Market Account. Are there any questions on that? If not, would somebody like to move acceptance? | 35 |
fomc | 1,998 | Move acceptance. | 3 |
fomc | 1,998 | I second the motion. | 5 |
fomc | 1,998 | Without objection. Peter Fisher, please. | 8 |
fomc | 1,998 | Thank you, Mr. Chairman. I will be referring to a package of materials that you should have in front of you. It begins with a one-page summary of my comments. 1/ Going over the summary, the first point is that the short-term and forward interest rate curves for the G-3 countries remain relatively flat. Second, I will b... | 1,852 |
fomc | 1,998 | Give him an "A." [Laughter] | 10 |
fomc | 1,998 | Give us an "A." | 6 |
fomc | 1,998 | With that degree of uncertainty, why isn't there more of a risk premium evident in the yield curve? I think, as I said, that expanding risk appetites associated with the bull market in financial assets have consumed the premium and therefore partially obscured it. The charts showing the bond and equity market returns a... | 1,876 |
fomc | 1,998 | The difference between the New York Bank and the Board with respect to Treasury receipts is huge in the sense that it does not appear from the pattern on the chart that this is merely a displacement of revenues from one period to another. New York's 1998 fiscal year surplus is significantly higher than the Board's. Wha... | 68 |
fomc | 1,998 | I'm afraid I don't have that number at my fingertips. It's on the order of a $30 billion surplus for this quarter. | 25 |
fomc | 1,998 | I think the higher receipts in the New York forecast carry through the end of the fiscal year. In fact, I think New York has an even larger difference in its forecast of the fiscal year surplus because there are some factors other than receipts affecting their surplus estimates. But you are correct, Mr. Chairman. The d... | 84 |
fomc | 1,998 | Is the Treasury surplus for the fiscal year over $50 billion at this point in your forecast? | 19 |
fomc | 1,998 | Yes. | 2 |
fomc | 1,998 | Can we go back briefly to Japan? I think we are all puzzled by the presumption of the Japanese authorities that they can somehow have an effective program to change the stock market and announce it. It is questionable enough to believe that the government can substantially alter the level of the stock market. It is wor... | 179 |
fomc | 1,998 | I wish I knew the answer to that question. I certainly share your assessment. When I said "no policy," I want to be clear that I was referring to the market looking, seeing, and feeling that nobody was home. There is the LDP; there is the cabinet; there are the members of the Diet; there are the agencies; these are the... | 139 |
fomc | 1,998 | One of the purposes of their stock market operations was to create Basel-weighted capital adequacy ratios for the March 31 statement date. If I am a counterparty funding some of these Japanese banks, I am not going to look at those numbers. What possible use are they to me in judging the safety and soundness of Japanes... | 82 |
fomc | 1,998 | I think the counterparties of the major Japanese banks are looking, unfortunately, at the implicit Japanese government guarantee that appears to have been reaffirmed. I don't think they are trading on the basis of the capital adequacy numbers when they are trading with Japanese institutions. | 52 |
fomc | 1,998 | What has been the latest premium in the London market on yen deposits for Japanese banks? | 17 |
fomc | 1,998 | It has come down to under 20 basis points. | 11 |
fomc | 1,998 | But it is still positive? | 6 |
fomc | 1,998 | Oh, it is still positive; we can still see it. | 13 |
fomc | 1,998 | If I could make a comment: The people in the market think that the single least wise thing the Japanese could have done was to reconstitute the convoy system. But that is exactly what they have done. As a result, the view is that the 19 largest banks have become a sovereign credit, and therefore the premium was created... | 74 |
fomc | 1,998 | The premium has to be a reflection of doubts about the sovereign credit. | 14 |
fomc | 1,998 | Precisely, and even though there is a perception that the bank that failed, Hokkaido Takushoku, was managed reasonably well when it collapsed, the Japanese are convinced that they did a terrible job because they did not anticipate the collapse. I think the market is saying that, yes, there is a convoy and there is sove... | 169 |
fomc | 1,998 | They have always had the opinion that since they would never let a bank fail, the Basel ratios were irrelevant. | 22 |
fomc | 1,998 | Exactly. | 2 |
fomc | 1,998 | The fact that they agreed to the Basel ratios has always implied a very unusual admixture. On the one hand, every Japanese commercial bank is backed by Japan's sovereign credit, and on the other hand, they have met their Basel ratios. This creates confusion. It has to be terribly confusing to a lot of our colleagues in... | 80 |
fomc | 1,998 | Peter, you made what was almost a passing reference to the fact that intermediate-term Treasuries had traded through the funds rate this year, and you indicated that many saw that development as reflecting expectations of some easing in the funds rate. But the alternative explanation is that trading through the funds r... | 155 |
fomc | 1,998 | I don't think I need to. I think you've said it very well. | 15 |
fomc | 1,998 | I'm asking about Street talk or views on this issue. | 11 |
fomc | 1,998 | I don't think the Street's focus on that hypothesis would be at the short end of the coupon curve, but if there were an anticipation of an easing move, the Street would talk about expecting a rally further out on the yield curve. In January, in fact, we observed what I was talking about in the chart that I showed at th... | 153 |
fomc | 1,998 | But wouldn't it also reflect, President Jordan, the expectation that, unless there was a negative term premium, nominal short-term rates would fall at some point so that the expected holding period yield from rolling over overnight instruments and two-year instruments would be equal. | 50 |
fomc | 1,998 | I was thinking more in terms of the 5- to 10-year range. If people anticipated a transitory acceleration of inflation that we would respond to, we would expect the yield curve to be downward sloping in that longer-term range. | 49 |
fomc | 1,998 | Right, because inflation would come down and short-term rates would move up. | 15 |
fomc | 1,998 | Further questions for Peter? If not, would somebody like to move to ratify the actions of the Desk? | 22 |
fomc | 1,998 | So moved. | 3 |
fomc | 1,998 | Without objection. Let us move on to Mike Prell and Larry Promisel. | 16 |
fomc | 1,998 | Thank you, Mr. Chairman. I think it would be appropriate for me to begin this morning by acknowledging that, yes, you did tell us so last month. You said that our GDP forecast for this year probably was too low, and now we have raised it appreciably. Moreover, a little reading between the lines of the Greenbook would i... | 1,796 |
fomc | 1,998 | I would like to highlight four areas of uncertainty on the international side: the crises in Asia, Japan, oil, and the dollar. First, the crises in Asia: There is an Asia effect, although we do not have a systematic handle on it. We see evidence in the trade statistics of the Asian economies themselves. The combined tr... | 988 |
fomc | 1,998 | Larry, I noticed that in the last couple of days we have had a particularly strong trade-weighted dollar. How much is the dollar above expectations in the final Greenbook forecast, which I assume was put together a week to ten days ago? | 49 |
fomc | 1,998 | How much higher depends on what you mean by the dollar. There are a lot of different ways of weighting and characterizing the dollar's average value. It has gone up some against the yen, but I don't think there has been a big change in terms of the various weighted averages that we use. I am looking for one average tha... | 77 |
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