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fomc | 1,998 | That is not a bad idea. Can we assume that you will put some suggestions together and circulate them to the Committee for comments? | 26 |
fomc | 1,998 | Yes. | 2 |
fomc | 1,998 | It's not that everyone will necessarily accept your view, but it would be a vehicle by which we could get some form of collective judgment on where this gets carried to. | 33 |
fomc | 1,998 | Sure. | 2 |
fomc | 1,998 | Does everyone agree with that? [Secretary's note: Several members expressed agreement.] | 16 |
fomc | 1,998 | Does anybody else have something they want to say on this subject? I forgot to mention earlier that, as always, you have time to revise the projections you have submitted. Dave Stockton will be the recipient of revisions, and the date is? | 48 |
fomc | 1,998 | Close of business on Monday. | 6 |
fomc | 1,998 | Close of business on Monday. If you have any revisions, please give them to Dave Stockton prior to COB Monday. Buses are leaving from here and from the Watergate at 7:15 p.m. for dinner at the U.K. embassy this evening. | 53 |
fomc | 1,998 | Good morning. We'll begin with a discussion of our longer-run objectives for money and debt growth. I call on Bill Whitesell to start us off. | 30 |
fomc | 1,998 | The Committee again must decide whether to make any adjustments in the ranges for money and debt growth, which have been unchanged since mid-1995. In recent years, the Committee has been interpreting the monetary ranges as those that would be consistent with price stability and normal velocity behavior, while the debt ... | 1,617 |
fomc | 1,998 | Questions? No questions! I guess you created some sort of record around here. Let me just give my impression of this policy issue. We currently have a set of targets that we believe encompass monetary growth under conditions of price stability, and we have had those targets for a considerable period of time. The moment... | 428 |
fomc | 1,998 | Absolutely, and that is what that graph shows. We may sometimes be in danger of trying to overinterpret wiggles in money demand. There does seem to be some tendency over time for money demand to return to levels estimated by opportunity costs, aside from the periods where we have had major shifts. Instead of breaking p... | 259 |
fomc | 1,998 | I would presume that the staff forecast, which I do not see on this chart, is in effect going back to assuming a type of relationship between opportunity costs and velocity that prevailed earlier. Is that correct? | 41 |
fomc | 1,998 | To some extent, I would say yes. Obviously, we do not have-- | 16 |
fomc | 1,998 | The staff forecast would have to take account of various new variables including mutual funds, since sometimes they work and sometimes they do not, or incorporate "fudge" factors. | 34 |
fomc | 1,998 | The staff forecast actually is in the first two columns of the last table. | 15 |
fomc | 1,998 | I don't see it relative to your calculated values. In other words, these charts are based on models. | 21 |
fomc | 1,998 | Right. | 2 |
fomc | 1,998 | What I do not see here is how the forecasts relate to the velocities and the deviations of V2 from a simple relationship with opportunity costs. Is the forecast going back to the zero deviation from opportunity cost on Chart 5? | 45 |
fomc | 1,998 | Projected M2 growth continues to be slightly above nominal GDP growth so velocity would be edging downward in 1999 as well. | 25 |
fomc | 1,998 | But will the gap reach zero? | 7 |
fomc | 1,998 | I'm not sure if it exactly hits the opportunity cost line. Obviously, we are projecting that the opportunity cost itself will be flat. I'm not sure where velocity exactly hits on a level basis, but it gets very close to that opportunity cost estimate. We had some special factors affecting M2 over the first half of this... | 223 |
fomc | 1,998 | President Parry. | 4 |
fomc | 1,998 | Mr. Chairman, I agree with your comments about the ranges. I, too, would not want to choose the ranges on the basis of a projection that is consistent with a forecast. I would prefer to set them on a basis that is consistent with price stability. I would suggest, though, that that approach might strongly support the ch... | 121 |
fomc | 1,998 | Vice Chair. | 3 |
fomc | 1,998 | I am somewhat sympathetic to President Parry's view, but I think this is a dog that is better left not barking in the night and bringing attention to the ranges at this time. We would have a lot of explaining to do if we said that we were reducing the debt range to move even more in the direction of price stability. I'... | 170 |
fomc | 1,998 | I'm not sure I understand what you mean by "weakening of monetary policy." | 16 |
fomc | 1,998 | In other words, I would not change the debt range even though I think you probably are correct intellectually. | 21 |
fomc | 1,998 | But if you are reducing the range, that is the opposite of weakening. | 15 |
fomc | 1,998 | He meant weakening debt growth. | 6 |
fomc | 1,998 | Oh, I see. | 5 |
fomc | 1,998 | I think we should not make any changes that would increase the monetary ranges, and therefore the fine-tuning of the debt range--which is really all you are suggesting, is it not? | 38 |
fomc | 1,998 | Yes, just the debt range. No change to the other ranges. | 14 |
fomc | 1,998 | I think that would bring attention to the subject that we do not need. | 15 |
fomc | 1,998 | I see. | 3 |
fomc | 1,998 | Governor Meyer. | 3 |
fomc | 1,998 | Let me offer an alternative perspective. I think that the current price stability interpretation allows target ranges for money growth to be set independently of both the current forecast and projected policy and therefore to be ignored in the policy process. Switching to a projections interpretation is therefore close... | 961 |
fomc | 1,998 | President Minehan. | 4 |
fomc | 1,998 | I come at this issue from a position that is opposite from Governor Meyer's and closer to yours, Mr. Chairman. I think that the value of the aggregates in terms of communications focuses on the long term rather than the short run. I went back to look at the original language of the Humphrey-Hawkins legislation, and I c... | 369 |
fomc | 1,998 | President Poole. | 4 |
fomc | 1,998 | My reading of the ranges in recent years is that they are almost completely ignored by the public primarily because the financial markets realize that money growth does not play an essential role in the Committee's deliberations on the course of policy. That was my perception when I became a member of this Committee. I... | 294 |
fomc | 1,998 | President Moskow. | 4 |
fomc | 1,998 | Mr. Chairman, I agree with the way you have presented this. I do not think we should change the ranges for the monetary aggregates nor do I think we should go to alternative III. As you said, we backed into a situation where the ranges emphasize our commitment to price stability and that approach is serving us well at ... | 139 |
fomc | 1,998 | President Boehne. | 5 |
fomc | 1,998 | I am sympathetic to the position that you laid out initially, Mr. Chairman, and while there is some intellectual case for changing the debt range, I do not think it is worth the effort at this point. I therefore would be for keeping the ranges as they are. | 54 |
fomc | 1,998 | President Jordan. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. A year ago at this meeting, I felt 1 to 5 percent was the right M2 range for 1998, given an economy operating at most people's notion of full employment, and I still think that. A year ago, I thought that if money growth was coming in above the 1 to 5 percent range, repeating the experience of ... | 193 |
fomc | 1,998 | President Stern. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. I, too, favor what is being called the price stability approach to these ranges, so alternative I is certainly fine with me. It seems to me that at the abstract level, there is a potential problem with going to something like alternative II. That is, if we allow for the normal lags between mone... | 206 |
fomc | 1,998 | So unintuitively it does? [Laughter] | 11 |
fomc | 1,998 | Could I just point out that the Committee is accepting that view in its policy decisions. Are you saying you don't want to communicate that to Congress because we will not look disciplined enough? | 36 |
fomc | 1,998 | I'm sorry, I didn't follow. | 7 |
fomc | 1,998 | The price stability range is not the range we are aiming for next year. | 15 |
fomc | 1,998 | Maybe we are! | 4 |
fomc | 1,998 | I guess part of my view of this, Larry, is that I don't think we have the ability to be all that precise in forecasting M2 or any of these other variables. We just are not that precise. I am not troubled by two facts. One fact that does not trouble me is that next year's projection of 4 percent M2 growth is not right i... | 181 |
fomc | 1,998 | President McTeer. | 5 |
fomc | 1,998 | Mr. Chairman, I agree that we should let sleeping dogs lie as far as these ranges are concerned. I would not disturb them. I have long believed, though, that we should keep these monetary aggregates alive for possible future use. When I look at Chart 4, especially the southeast corner that shows the relationship betwee... | 244 |
fomc | 1,998 | In every presentation of monetary policy that I have made to the Congress, I have had some reference to the money supply for exactly that reason, to keep the aggregates alive. We do not want to shift back to some emphasis on the aggregates and have somebody ask where that came from. In my recent testimony before the Jo... | 113 |
fomc | 1,998 | When I read the financial press, though, I get the impression that nobody thinks we are looking at M2. The reporting is all in terms of other things. So, I do not think that the aggregates have broken through to the consciousness of the financial writers. | 53 |
fomc | 1,998 | President Guynn. | 4 |
fomc | 1,998 | Thank you, Mr. Chairman. I would join those of you who argue against making any changes in the current ranges. Presidents Minehan and Poole made the arguments the way I probably would have made them. I will repeat only one of those arguments, and that is that I do not see anything about the current construct that takes... | 159 |
fomc | 1,998 | Governor Ferguson. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. I agree with President Guynn. I think it is very important for us to keep track of what ranges are consistent with our views of long-term price stability. That does allow those of us who are focused on them to remind the rest of us that we are experiencing above trend growth. I think that actua... | 179 |
fomc | 1,998 | President Hoenig. | 4 |
fomc | 1,998 | Mr. Chairman, I, too, believe in the price stability approach for setting the long-run ranges. In my view, there continues to be a long-term relationship between money growth and inflation, and I think we will be returning to the use of money aggregates in the not very distant future. Therefore, I would support either ... | 71 |
fomc | 1,998 | Governor Kelley. | 3 |
fomc | 1,998 | Mr. Chairman, I also would not make a change now in the ranges for either of the two time periods. In the case of the second half of 1998, I agree with President Minehan that the Humphrey-Hawkins Act primarily focuses on what the Committee plans for the aggregates. That implies that we are setting ourselves a benchmark... | 233 |
fomc | 1,998 | Governor Rivlin. | 4 |
fomc | 1,998 | I, too, concur with keeping the ranges where they are. The fact is that we do look at the money supply numbers and we discuss them along with a lot of other variables, but in my time on this Committee we have not really used them to set policy. I would need a lot of convincing to believe that we should. That leaves me,... | 98 |
fomc | 1,998 | Governor Gramlich. | 4 |
fomc | 1,998 | Thank you, Mr. Chairman. I also am opposed to changing the ranges and interpreting the ranges as goals. I would retain alternative I, but I would point out that these are stochastic goals and they involve relationships. For those of you who are tremendously influenced by the bottom panel of Chart 4, relationships do co... | 114 |
fomc | 1,998 | President Broaddus. | 5 |
fomc | 1,998 | Mr. Chairman, I strongly agree with your position. My main focus is on M2 rather than M3 and the debt aggregate. Like others, I think the current 1 to 5 percent range for M2 plays a couple of critical roles. First, I am very strongly of the view that it clearly signals our ongoing commitment to price stability. In fact... | 268 |
fomc | 1,998 | It appears that there is fairly general consensus for no change, which is alternative I. Would you read the language encompassing that alternative? | 26 |
fomc | 1,998 | That will be from page 22 of the Bluebook. The first sentence is the usual general sentence on the goals of the Committee: "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. In furtherance of these objectives, the Committ... | 258 |
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 Governor Meyer Yes President Minehan Yes President Poole Yes Governor Rivlin Yes | 43 |
fomc | 1,998 | The next item on the agenda will be introduced by David Lindsey. He is pinch-hitting for Don Kohn who may have a sore back. Is that why you are not at bat swinging? | 39 |
fomc | 1,998 | I had more important things to do over the weekend, Mr. Chairman. My son got married! [Laughter] | 24 |
fomc | 1,998 | Mr. Lindsey. | 4 |
fomc | 1,998 | Thank you, Mr. Chairman. The long-run simulations shown on Chart 2 following page 9 of the Bluebook provide one way of placing the Committee's short-run policy decision in a longer-term strategic perspective. 4/ The solid lines show a baseline extension of the Greenbook forecast for ten more years, along which the econ... | 1,650 |
fomc | 1,998 | Thank you. Questions for David Lindsey? If not, let me start. For months, we have been concerned with weighing the effects of strong excess domestic demand, that some may have seen as accelerating, against those of a deteriorating international environment. A number of you commented yesterday that the risks on both sid... | 1,560 |
fomc | 1,998 | Perfect background noises. | 4 |
fomc | 1,998 | I think the watch was digitally saying "right on!" [Laughter] In any event, if we look at these rapidly improving technologies, they represent the areas where all the faster than expected growth in capital investment is coming from. Such growth is occurring in communications equipment, which has benefited from a huge e... | 1,946 |
fomc | 1,998 | Thank you, Mr. Chairman. I am essentially in agreement with your analysis and with the conclusion. I do have modest differences. I believe that the risk on the external side is somewhat greater than you indicated, and it could materialize even sooner than we have anticipated. On the basis of what we now know, what the ... | 495 |
fomc | 1,998 | Governor Ferguson. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. I agree with your recommendation on maintaining the federal funds rate where it is today and also on maintaining the bias toward tightening. I am concerned about the prospects of an updrift in inflation. I guess I fear, perhaps more than you do, that the staff's forecast for slower expansion wi... | 264 |
fomc | 1,998 | President Jordan. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. Obviously, I am delighted with the staffs upward revisions in its estimates of productivity growth and potential output growth, and I will be even more pleased if future revisions are also upward to 3, 3-1/4, or even 3-1/2 percent, which I guess was the highest in history. That would be absolut... | 571 |
fomc | 1,998 | President Boehne. | 5 |
fomc | 1,998 | If there ever was a time to hold steady, it is now. We have a precarious international situation that I think is as dangerous to world prosperity as we have had in a long time. We also have latitude to wait and see domestically. Our backs are not to the wall in that regard and, therefore, I think the case is very persu... | 135 |
fomc | 1,998 | President Broaddus. | 5 |
fomc | 1,998 | Mr. Chairman, we clearly are seeing some weakness now in some of the second-quarter numbers, but it seems to me that even though the growth of final demand may be weaker in the second quarter than we thought it was going to be just a few weeks ago, it is still going to be well above trend. We have discussed the two neg... | 370 |
fomc | 1,998 | President Minehan. | 4 |
fomc | 1,998 | Mr. Chairman, there is no question in my view that we currently face heightened risks. On the downside, the risks discussed during our lengthy review of the economic outlook yesterday and this morning stem from developments in Asia, Russia, and other places, projections of declining inventory investment over the short ... | 431 |
fomc | 1,998 | President Moskow. | 4 |
fomc | 1,998 | Mr. Chairman, the upside and the downside risks we face are much the same as those we talked about at our last meeting, but as a number of us have said, they now seem to be more severe in both directions. The domestic economy has continued to show signs of unsustainable growth, and we now have seen some modest worsenin... | 238 |
fomc | 1,998 | President Parry. | 4 |
fomc | 1,998 | Mr. Chairman, for many of the reasons you mentioned, I agree with your recommendation both with regard to the federal funds rate and the asymmetry. It does seem to me, however, that inflation is becoming a more serious problem. My greatest fear is that we may be losing the relatively painless gains in inflation we have... | 90 |
fomc | 1,998 | President Guynn. | 4 |
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