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Thank you, Mr. Chairman. In view of the unusual constellation of real economic and financial conditions, both domestic and international, I believe the outlook for the economy is "murky," which I think is the word Mike Prell used. I would say it's perhaps even murkier than the staff presentation might suggest. The data...
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Governor Rivlin.
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Let me make three general points about the situation we find ourselves in at year-end. One is that the continued sterling performance of the U.S. economy is really remarkable, and it is going to be worthy of some serious scholarly attention for some time to come. A year or two ago the press, economists gathered at meet...
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Governor Meyer.
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Thank you, Mr. Chairman. Like most forecasters, I responded to the downward revision in foreign growth prospects and the abrupt deterioration in domestic financial conditions after midyear by revising down my expectations for U.S. growth over 1999. Unlike most forecasters, I was in the position to ratify my earlier for...
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Thank you. I think we have ended as close to 11:00 as we have in a very long time. I assume coffee is out there.
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Yes.
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We are on schedule for a change.
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Mr. Kohn.
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Thank you, Mr. Chairman. The announcement of your last easing suggested that, as a consequence, the federal funds rate might be positioned to sustain growth and keep inflation contained. The incoming information since then could be seen as reinforcing that judgment, at least for now. Economic activity has been stronger...
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Incidentally, Don, when are we scheduling the next senior loan officer survey?
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It will be before the February meeting. We will do the survey in the middle of January with the results coming in during the week before the February meeting. Preliminary results are usually in the Greenbook and the final results in the Greenbook Supplement. So you will have the results on the Friday before your Februa...
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Other questions for Don? If not, I will start off with some comments on developments relating to policy. I think all of you commented on the continued momentum in the economy. Even the labor market data, which appeared to be weak or at least potentially weak at the time of our November meeting, now seem to have stabili...
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Mr. Chairman, I interpret that, as I'm sure you intended, as a recommendation for "B" symmetric, which I heartily endorse. As far as luck goes, I am reminded of the immortal words of Lefty Grove: "It is better to be lucky than good." In that year, he won 31 and lost 6.
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If he had been right-handed, he would have lost eight. [Laughter] President Parry.
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Mr. Chairman, I believe our easing of policy and the associated stock market rebound have significantly reduced the chance of recession or a major slowdown over the next year or so, and for now I think we should leave the funds rate at 4-3/4 percent. Although I believe the upside risks to growth, at least in terms of t...
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I should have mentioned that. Why don't we conclude this policy discussion and afterwards go back to the directive wording issue instead of taking that up now.
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Okay. That's all I have for now.
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President Poole.
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I, too, support an unchanged federal funds rate. But I want to talk about looking further out into the future than just the current situation. Mr. Chairman, you emphasized what I regard as indeed the key feature of our economic environment, the lack of any pricing power. I think that comes from what are now, fortunatel...
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President Jordan.
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Thank you. I can agree with "no change" today. Even though I disagreed with the funds rate reduction in November, I would not reverse it as of today. I don't know what is going to happen in the future because of the potential for external shocks from Brazil or Russia or elsewhere that will influence the way the domesti...
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Governor Rivlin.
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Mr. Chairman, I concur with the "no change" and a symmetric directive. I think the risks are on both sides, but they are of a somewhat different nature. The upside risks would probably emerge gradually and not surprise us by their virulence. The downside risks, I think, are likely to be reflected in big changes if they...
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Governor Ferguson.
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Mr. Chairman, I, too, endorse your view of "B" symmetric. I also agree with Governor Rivlin that the risks are likely to be somewhat different. The downside risks, as they have over the last year, seem to have a low probability of developing but are likely to be highly visible if they do. Actually, I do slightly disagr...
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They won't sneak up on Jerry Jordan. He already has them factored in. [Laughter]
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I think we are, as you indicated, back to a posture very similar to where we were earlier this year.
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President Guynn.
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Mr. Chairman, I also favor "no change" with a symmetric directive today. I think the case for that has been made very well around the table. As I was reflecting during the break, I was struck by the number of people today who in the earlier go-around identified and quantified the upside risks, certainly to a greater de...
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President Boehne.
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I support "B" symmetric without any agonizing! [Laughter]
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President Moskow.
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Mr. Chairman, I support "B" symmetric with a little bit of agony. [Laughter] I agree with your description of the risks. However, I do want to emphasize, as have others, that we have made progress against inflation but that our forecast for 1999 shows inflation edging up a little. We all know it's because of energy pri...
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I tried not to convey a view that was other than that. President Stem.
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I, too, support "B" symmetric.
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Governor Meyer.
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Mr. Chairman, I support your recommendation for no change in the funds rate target and to retain the symmetric posture for the policy directive. I believe it is sometimes useful to think about monetary policy in terms of the desired path for the growth of output instead of the desired path for the funds rate. The path ...
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President Minehan.
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I also agree with your recommendation of "B" symmetric. I agonized before, so I'm not going to do it now.
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Governor Gramlich.
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I support "B" symmetric. I would just like to make one point about something that Alice Rivlin said about the short lags, which I tend to agree with. The implication is, I believe, that it gives us a little time. We can wait until we see some brown spots before we have to do anything. We don't have to eat the banana wh...
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The agony of bananas!
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Can you top that, Tom Hoenig?
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I am speechless! But I'm going to say a couple of things anyway. First, I support your recommendation completely. Without getting into bananas or agonizing, I would caution us about how we look at the need for future policy actions. Here I associate myself a little with Bill Poole. I think we need to look at the action...
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President McTeer.
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I agree with your recommendation.
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Governor Kelley.
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I agree with your recommendation.
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President Broaddus.
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I agree with your recommendation, Mr. Chairman, not with agony--that would be too strong a term--but with at least some sense of unease. What I especially agree with in your recommendation is your statement that we are now back at the point of looking at the risks on both sides of the equation. My feeling is that they ...
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Okay. Before we move to an official vote, let us now go back to the issue of the directive language. Remember that there are two issues to be resolved, presumably finally, after our previous discussions. One involves the question of the deletion of the phrase "in coming months," which is the basic distinction between o...
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May I ask one question, Mr. Chairman? I was one who, just for language purposes, wanted to drop the sentence: "Any potential changes in the federal funds rate...." Some expressed a concern that one of the subtleties of that wording related to your authority to act on the Committee's behalf between meetings. One view wa...
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I do not, mainly because the members around this table said it did not. And that is the ultimate determination.
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Thank you.
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President Hoenig.
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Mr. Chairman, I like option 3. I agree with the language in the middle sentence that includes both the coming months and the intermeeting period. I would have no problem with deleting the sentence on the money supply but I certainly would not get into an argument if we left it in.
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Governor Kelley.
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Mr. Chairman, I think I would prefer option 3, although I don't feel strongly about most of the differences. I would delete the sentence Ed Boehne talked about on potential changes in the funds rate because I view it as more confusing than helpful. I do feel rather strongly about taking out the "in coming months" phras...
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President Broaddus.
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Mr. Chairman, I would prefer option 3 but, like Governor Kelley, I have a rather strong preference for taking out that phrase "in coming months." This is an operating paragraph that is supposed to focus on our plans for the operating instrument over the operating period, which is the period until the next meeting. As a...
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Governor Rivlin.
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I support option 3 and taking out the "in coming months" for the same reasons that Governor Kelley and President Broaddus have stated. I have a slight preference for getting rid of the monetary aggregates sentence, but I don't feel strongly about it.
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President Minehan.
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I, too, favor option 3. I feel very strongly about taking out "in coming months" for the reasons that Governor Kelley and President Broaddus stated earlier. As for the M2 and M3 sentence, it could go or stay; I don't have a strong opinion. But since monetary trends do seem to provide us with some information, at least ...
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Governor Meyer.
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I would delete the sentence in question in option 2, thereby going with option 3. I would actually prefer to leave in the phrase "in coming months" in option 3. It goes to the question of what we mean by symmetry and asymmetry. Does it refer to the intermeeting period or is it a statement about the balance of risks tha...
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Governor Gramlich.
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Actually, given that Larry Meyer was so convincing, I will stand behind him: Option 3; retain "in coming months;" and drop the last sentence.
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President Stem.
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I prefer option 3. I think the last sentence on the monetary aggregates should be retained. I don't feel that strongly about the debate over "in coming months" versus simply "during the intermeeting period." On balance, I'd keep the sentence the way it is and leave it in.
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President Moskow.
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I will be a purist on this, Mr. Chairman. Since this is a directive, I think the phrase "in coming months" should come out and the last sentence should come out too. I don't feel as strongly about the last sentence as I do about the phrase "in coming months."
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Are you for option 3?
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Yes.
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President Parry.
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In option 3 I would take out "in coming months" for the same reason that President Moskow indicated. I also have a preference for removing the last sentence.
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Governor Ferguson.
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I have a slight preference for option 2, but the consensus seems to be going toward option 3. So, I will go with that since it does what I think we need to do. With respect to the issue of "in coming months," I would retain it for the reasons that Governor Meyer indicated. I would also retain the last sentence for much...
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President Boehne.
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I am for option 3. I would drop "in coming months" for the same reasons and with the same degree of conviction that Governor Kelley expressed. I am practically indifferent about the last sentence. On balance, I would probably keep it in.
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Vice Chair.
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Mr. Chairman, atypically for me, I am fairly relaxed about the whole thing. [Laughter] I have a marginal preference for taking out the words "in coming months." Perhaps inconsistent with that, I would leave the money sentence in on the theory that to spend the next year of our lives having knock-down, drag-out battles ...
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President Poole.
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Mr. Chairman, I would go for option 3. I would take out "in coming months" because I view this as the operating directive that applies until the next meeting. I believe that a sense of the longer-run perspective of the Committee can be and is given in the minutes that are released at the same time as the directive. I f...
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So you are taking it out?
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I would take it out now because in the interest of accuracy it does not belong there.
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President McTeer.
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I'd go with option 3 and remove "in coming months" for the reasons Governor Kelley gave. I'd keep the last sentence for the reasons Al Broaddus gave.
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President Guynn.
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I, too, favor option 3 and would delete the last sentence on the aggregates. I would leave "in coming months" in for the reason Governor Meyer articulated. I would delete the last sentence for the reasons that President Poole referred to. I hope that helps in reaching a consensus. [Laughter]
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We need a debate between Governors Meyer and Kelley.
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President Jordan.
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I prefer option 3 and I'd delete the reference to "in coming months." My first preference would be to keep the sentence on money if it were read and interpreted by everybody as a true proviso clause: If, for example, it meant that if money growth does not slow down as currently indicated in that sentence, we would chan...
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That covers all the speakers. If you can give the Secretariat just a minute to assess where the Committee comes out on the wording-- [Laughter]
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The decision is so clear from that discussion!
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We have only been discussing this for a year now. I went to New Zealand hoping that this issue would be settled before I returned! [Laughter] Dave Lindsey let me down.
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You are going to have to write the minutes summarizing this discussion.
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We might just say: "The Committee then turned to the directive language. At the end of the discussion...."
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The vote is unanimous in favor of option 3. There are small majorities in favor of eliminating the "months ahead" reference and the "money supply" sentence, but the votes are not overwhelming. The three of us who were tabulating the preferences during the discussion get the same results, so I assume that our count is a...
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