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fomc | 1,998 | I think we have an unsustainable situation. Unless we are quite fortunate and get some offset to inflationary demand pressures other than through policy action, we indeed will have to face up to making a policy adjustment and probably more than once. On the issue of preparing the market, I think a policy speech by you ... | 350 |
fomc | 1,998 | President Broaddus. | 5 |
fomc | 1,998 | Mr. Chairman, I expected the general tone of this meeting to be more bullish than it was at the February meeting, but the bullish comments today have exceeded my expectations! So, it will not surprise you or anyone else that I would still prefer to take action today. Governor Gramlich's comments about operating with a ... | 292 |
fomc | 1,998 | Wouldn't it be better to start doing that when it does not matter? | 15 |
fomc | 1,998 | It would be more convenient, no doubt about it. Maybe the best way-- | 16 |
fomc | 1,998 | If we are to establish a precedent, it seems best to do so when it does not create problems. | 21 |
fomc | 1,998 | That's a good point. It may be that the best way to go about preparing the markets currently is for you to make a speech of some sort where you bring this matter up. But I think that we might want to consider later the other alternative of announcing something immediately after each meeting. | 57 |
fomc | 1,998 | President Jordan. | 3 |
fomc | 1,998 | Thank you. Referring back to something I said earlier about the opening sentence in the general paragraphs of the directive, I think we do need to make a change there. | 34 |
fomc | 1,998 | I think that already has been done. | 8 |
fomc | 1,998 | Okay. | 2 |
fomc | 1,998 | After having listened to your earlier comment, I think wise heads around here made a change. | 18 |
fomc | 1,998 | I agree with Ed Boehne about what to include in our public comments concerning the reasons for our policy actions. I still think that our actions in early 1994, properly viewed, prevented the recession of 1996. What we are faced with today is how to prevent the next credit crunch and recession of the year 2000. We will... | 286 |
fomc | 1,998 | President Hoenig. | 4 |
fomc | 1,998 | Mr. Chairman, I can accept your recommendation as you presented it. There is information that suggests we can wait: the relatively high real federal funds rate, fairly low and trendless inflation right now, and bond markets that are signaling benign inflation expectations. But there is also an issue of timing. I believ... | 166 |
fomc | 1,998 | Governor Meyer. | 3 |
fomc | 1,998 | Mr. Chairman, I support your recommendation for no change in the federal funds rate and for an asymmetric posture. I have some considerable sympathy with the notion that, rather than just expanding the policy announcement, we have an immediate release of the directive that would indicate-- | 52 |
fomc | 1,998 | You mean the whole directive? | 6 |
fomc | 1,998 | The whole directive. On the other hand, I think that proposal deserves a full discussion of the pros and cons before we move forward. If we decide to go in that direction, we might want to do so at a time when the directive would not create a surprise when it is released. There are some relevant issues. A change from s... | 159 |
fomc | 1,998 | Mr. Chairman, could I comment on whether we should make such an announcement? In earlier discussions, I have expressed some sympathy with what President Parry was talking about regarding announcements because I believe more information is of value. However, like others, I think that if we release a statement on this oc... | 147 |
fomc | 1,998 | President Poole. | 4 |
fomc | 1,998 | I am very surprised that in recent months the markets have responded so little to the stronger than anticipated economic data. The markets have absolutely solid expectations that we will not move. I think it is very unfortunate that that situation faces us as we sit here today. As an outsider, I also have been puzzled ... | 257 |
fomc | 1,998 | I think we ought to put it on the agenda for the next meeting. That issue has not come up in that form until very recently, and I think it is worthwhile discussing it. | 37 |
fomc | 1,998 | I, like everyone else around the table, am well aware that the inflation numbers look very good. But I am concerned that we are at a very vulnerable stage. We could have some bad news and once a rise in inflation gets going, particularly if our policy has gotten behind, it is going to be very hard to catch up. So, I th... | 97 |
fomc | 1,998 | President Stern. | 3 |
fomc | 1,998 | 1, too, support your recommendation, Mr. Chairman, and I share Bill Poole's concern about the timing of the release of the asymmetry. We now release it at a point when it does not do us any good, and I think the implication of that is what Ed Boehne was talking about. You can give a policy speech that elaborates on our... | 78 |
fomc | 1,998 | President Moskow. | 4 |
fomc | 1,998 | Mr. Chairman, I agree with your recommendation. A lot has been said already, and I don't want to repeat it. In my view, the one thing that may well undo this expansion and all its benefits to society is for inflation to start to accelerate and require us to take some very severe action. So, I think it is absolutely ess... | 255 |
fomc | 1,998 | Governor Ferguson. | 3 |
fomc | 1,998 | Mr. Chairman, I agree with your recommendation of "B" asymmetric. I think it is important that we signal that we are both vigilant and want to maintain the gains that already have been made. When we removed the asymmetry from the directive in December, I asked one of the other Board members why we did not announce the ... | 113 |
fomc | 1,998 | It sounded okay! | 4 |
fomc | 1,998 | It was one of many explanations! I believe, however, that the issue deserves more consideration. So, I would not rush into announcing now, but I do think we should discuss the issue at the next meeting. I recognize that we will have some explanations to make when we move to tighten policy because, while inflation press... | 241 |
fomc | 1,998 | President Guynn. | 4 |
fomc | 1,998 | Thank you, Mr. Chairman. I, too, support your recommendation and I am pleased with the return to asymmetry. I take heart, as I guess everyone else does, from our resolve not to wait too long. Just to finish that thought, I guess it is obvious in what has been said by Bill Poole, Gary Stern, and others that not only do ... | 149 |
fomc | 1,998 | That's right. | 3 |
fomc | 1,998 | Governor Kelley. | 3 |
fomc | 1,998 | Mr. Chairman, I strongly support your recommendation. Relative to the discussion about a possible announcement, I would have a very strong preference for not making one today. That preference is based on a longer-term reason and an immediate reason. The longer-term reason would be the one that has been expressed around... | 206 |
fomc | 1,998 | Governor Rivlin. | 4 |
fomc | 1,998 | Mr. Chairman, I support your recommendation, but I think we should remind ourselves that, with the exception of Bill Poole, we have all been here before. The situation has changed and we have a new view of the outlook. It is not inconceivable that we will be back in six weeks when something, presumably developments in ... | 339 |
fomc | 1,998 | Governor Phillips. | 3 |
fomc | 1,998 | Thank you. I think we can hold off for now. I do not see any immediate pressure to act. But unless the economy cools off, I believe we will have to tighten. With respect to symmetry or asymmetry, I think that if we were to act in the intermeeting period, we would have a telephone conference anyway, so I'm not sure that... | 218 |
fomc | 1,998 | President McTeer. | 5 |
fomc | 1,998 | I support your recommendation. | 5 |
fomc | 1,998 | President Minehan. | 4 |
fomc | 1,998 | Mr. Chairman, I came to this meeting prepared to vote for an increase of 25 basis points in the federal funds rate, and I also came prepared to dissent if we did not at least move to asymmetry. I am glad that your recommendation is to move to asymmetry. I support it, but I am concerned that we continue to face the diff... | 355 |
fomc | 1,998 | That could be part of the discussion that we will have at the next meeting because it is part of the same issue. | 24 |
fomc | 1,998 | Right, and that takes me to the policy speech proposal. I know we have been commenting on these issues in policy speeches, and I agree with Alice Rivlin, Ed Boehne, and others who have talked about the context in which to describe our policy actions. But I am a lot more comfortable with policy speeches after a move tha... | 136 |
fomc | 1,998 | Governor Gramlich. | 4 |
fomc | 1,998 | Mr. Chairman, I will support a no-move, asymmetric directive. To see if I have mastered Fedspeak, if somebody had proposed that we raise the fed funds rate by 25 basis points, I would have supported that, too! I am worried, as I said, that we could get ourselves in a position of being too rigid on the funds rate. I do ... | 399 |
fomc | 1,998 | Okay. I think we have a broad consensus around "B" asymmetric, so would you read the directive. | 22 |
fomc | 1,998 | Excuse me, Norm. On that first sentence of the directive, Mr. Chairman, one possibility would be to keep essentially the words that were used in the last directive. It would say, after changing a few words in that sentence: "The information reviewed at this meeting suggests that economic activity continued to grow rapi... | 72 |
fomc | 1,998 | That would be accurate. | 5 |
fomc | 1,998 | The wording of the operational paragraph is on page 14 of the Bluebook: "In the implementation of policy for the immediate future, the Committee seeks conditions in reserve markets consistent with maintaining a federal funds rate at an average of around 5-1/2 percent. In the context of the Committee's long-run objectiv... | 133 |
fomc | 1,998 | Call the roll. | 4 |
fomc | 1,998 | Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Ferguson Yes Governor Gramlich | 17 |
fomc | 1,998 | Do we have to have the "slightly lower" phrase? Am I out of order? [Laughter] | 23 |
fomc | 1,998 | That is the conventional rhetoric. | 6 |
fomc | 1,998 | Yes, but-- | 4 |
fomc | 1,998 | We have been butchering the English language in this directive for years, but let's not change it just yet. Why don't you bring that up at a later meeting? [Laughter] | 38 |
fomc | 1,998 | On that advice, I vote "yes." [Laughter] | 13 |
fomc | 1,998 | President Hoenig Yes President Jordan No Governor Kelley Yes Governor Meyer Yes President Minehan Yes Governor Phillips Yes President Poole Yes Governor Rivlin Yes | 28 |
fomc | 1,998 | Our next meeting is May 19th. We adjourn for lunch. | 15 |
fomc | 1,998 | Would somebody like to move approval of the minutes for the meeting of March 31? | 17 |
fomc | 1,998 | So move. | 3 |
fomc | 1,998 | Without objection. This incidentally is the last meeting of our esteemed Governor Phillips. | 16 |
fomc | 1,998 | Yes, and I thought about that as I was reading Greenbooks over the weekend. [Laughter] | 21 |
fomc | 1,998 | I'm sure it occurred to you, Susan, that you don't have to read them anymore! In any case, we will miss you. As you know, there is an official farewell luncheon at the time of the next meeting. We will withhold all our kind remarks at this point because we do not want to influence your vote this morning, one way or ano... | 73 |
fomc | 1,998 | Thank you. | 3 |
fomc | 1,998 | I think all of you are aware that Lynn Fox is trying to step into Joe Coyne's shoes, a task she is struggling with successfully, I hope. We welcome you to your first meeting. Peter Fisher, would you take over please? | 49 |
fomc | 1,998 | Thank you, Mr. Chairman. I will be referring to the package of color charts that should be on the table before you.1/ The first page shows the 3-month deposit rates including the current Libor, the 3-month forward, and the 9-month forward rates. Looking at the U.S. panel, you can see that there has been little net chan... | 3,354 |
fomc | 1,998 | Questions for Peter? | 4 |
fomc | 1,998 | On the proposed changes to the securities lending program, you indicate in the memo that you plan to use a noon auction. What are your thoughts about lending in times of stress? Would you have to supplement that noon auction later in the day? Why noon? Why not 1:30 or 1:00 p.m.? How will you deal with problems of deman... | 76 |
fomc | 1,998 | Noon is rather late in the cycle of daily trading and clearing in the market. The book entry side of the wire closes at 3:00 p.m. We want to try to provide some elasticity to both the trading and the clearance functions of most major firms. A noon auction would enable them to get their results around 12:30 p.m., and th... | 283 |
fomc | 1,998 | President Hoenig. | 4 |
fomc | 1,998 | Peter, I have read your memo on our securities lending program. Just for my benefit, perhaps, is there some compelling reason for the Federal Reserve to be lending on a daily basis? Is there fear of a market failure? I know we have increased our lending in certain crises, but I am a little unclear as to why we should e... | 135 |
fomc | 1,998 | Obviously, if we state the problem in the extreme form of market failure, it is hard to point to a market failure. What I would emphasize is that we rely on the very smooth operation of this market because it is the vehicle for our principal policy tool. I think that is why, in looking back through years and years of m... | 370 |
fomc | 1,998 | Does it require that you go in on a daily basis to provide this "marginal" help, if that is the right word? | 28 |
fomc | 1,998 | I would prefer that we be predictable and transparent in the rules under which we operate. We thought long and hard about trying to design a more discretionary program where we would just respond to dealer needs. But that began to feel more like intervention in the "specials" market. It was very hard to see how we coul... | 169 |
fomc | 1,998 | I can see utilizing this for a situation involving a Drexel or some kind of strain, but being there constantly on a daily basis seems more than necessary. That is my reaction to it. I am not an expert, obviously. | 46 |
fomc | 1,998 | We have been in the business of lending securities on a daily basis for 30 years. | 18 |
fomc | 1,998 | Right. | 2 |
fomc | 1,998 | We get requests every day, which essentially end up being rationed on a first-come, first-served basis and very small amounts being lent with great awkwardness. The last time I spoke to the Committee about this, I indicated how uncomfortable I was with our rule of lending only to dealers who were not short. It is a nic... | 89 |
fomc | 1,998 | Okay. | 2 |
fomc | 1,998 | I admit that I am stuck. We have been in the business of lending securities for a long time, and we would have a problem if we tried to get out of it now. I think the dealers and the Treasury would raise a hackle. | 50 |
fomc | 1,998 | I take it that you feel more comfortable going to a price constraint rather than depending on the current quantity limits. | 22 |
fomc | 1,998 | I'm proposing going principally to a price constraint with some quantitative limits. One reason I want to have a concrete proposal to show the dealers is that I anticipate a spectrum of opinions. There are some who will think this proposed program is great, but others will say that it is not a good idea and that it wil... | 223 |
fomc | 1,998 | Your words were subtle. Is the Treasury comfortable with this? | 12 |
fomc | 1,998 | Yes, they are comfortable. They support, as I said, our going forward. There is some delicacy in that it is our program and not theirs. This function is right on the edge of both open market operations and debt policy. They see some risk that while we could generate additional revenues from the new program, of which th... | 108 |
fomc | 1,998 | Vice Chairman. | 3 |
fomc | 1,998 | Peter, could we go back to your discussion of what the Bank of Japan has been doing? I think we all agree that they are dealing with a troubled banking system. The Bank of Japan now has a significant amount of bank paper on the asset side of its balance sheet. So, if we had a bank failure in Japan, one of the interesti... | 98 |
fomc | 1,998 | Yes, that is another feature I did not mention. You can see that in their balance sheet. I don't have the figures in front of me, and I'm not sure it is an overwhelming number. But, yes, there has been a certain amount of credit substitution that the Bank of Japan has arranged largely by issuing its own bills while it ... | 198 |
fomc | 1,998 | Isn't this one instance, President McDonough, where that bank paper is covered by the implicit guarantee of the government? Actually, the Bank of Japan itself has substantial profits, so I think it could absorb sizable losses. The first recourse might be that if a bank failed, the creditors would be made whole by the g... | 90 |
fomc | 1,998 | My policy problem is that, since they seem to have fully refloated the convoy system with 19 banks now limping along in the convoy, part of the fuel in each of the ships currently is supplied by the Bank of Japan. Even though the Bank could absorb the shock financially, this is another reason why they would be inclined... | 131 |
fomc | 1,998 | I don't have any evidence of this other than anecdotes in the market, but the impression in the market is that the private paper the Bank of Japan is taking in is not of the top 18 banks but of the lower tiers. As I see it, this makes it a slightly bigger problem. The Bank of Japan may have an implicit guarantee for th... | 101 |
fomc | 1,998 | President Minehan. | 4 |
fomc | 1,998 | Just a follow-up question. You are referring to bank paper and not to bank customer paper? | 19 |
fomc | 1,998 | As I understand it, it is a mix of both. It is similar to what we take in at the discount window. | 25 |
fomc | 1,998 | The recommendation for some time has been for them to distinguish between bad banks and good banks in their efforts to resolve their financial problems. Is the Bank of Japan becoming the bad bank? | 36 |
fomc | 1,998 | I don't think it is insolvent! | 8 |
fomc | 1,998 | That's an interesting way of putting it! | 8 |
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