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fomc | 1,999 | Thank you, Mr. Chairman. Economic activity in the Philadelphia District remains strong and shows few signs of slowing. Labor markets continue to be tight, but competition remains fierce and there appear to be few inflationary pressures. The outlook is also positive whether one talks to manufacturers, retailers, auto de... | 342 |
fomc | 1,999 | President Stern. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. With regard to the District economy, overall conditions remain quite favorable and, if anything, activity has picked up a bit. Retail sales have been strong in recent months, manufacturing activity for the most part has been positive, construction activity has certainly been healthy, and labor ... | 419 |
fomc | 1,999 | Governor Ferguson. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. As I was preparing for today's meeting, I was thinking about what has changed in the economy that might require a change in the stance of monetary policy. I came to the conclusion--similar to what others have expressed--that a great deal has happened but in some ways very little has changed. Wi... | 558 |
fomc | 1,999 | Governor Meyer. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. The staff's revised forecast features once again an upward revision to growth and a downward revision to inflation and hence a more favorable outcome for 1999 than was projected in the last Greenbook. Nevertheless, the staff forecast raises an important question for monetary policy going forwar... | 1,179 |
fomc | 1,999 | Governor Kelley. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. The basic condition of the economy in this country is well known by everybody here. It has been very well articulated this morning and I will not try to recite again all the factors involved. At our last meeting I felt that the risks faced by policymakers were balanced but that if the upside ri... | 335 |
fomc | 1,999 | Governor Rivlin. | 4 |
fomc | 1,999 | Those of you who are careful listeners will remember my comments about the little elves who get their kicks out of confounding the experts and modelers and doomsayers by making the U.S. economy perform just a bit better than any of those folks imagined that it could. Well, as I read things, not only have the elves been... | 94 |
fomc | 1,999 | Is that a short person joke? [Laughter] | 11 |
fomc | 1,999 | Despite Mike Prell's denial of "new era" thinking, the Greenbook forecast actually looks pretty good. And as Cathy Minehan pointed out earlier, a good deal of the shift in the staff's thinking over time reflects changing views about productivity and hence about potential growth. As I read what they are saying at the mo... | 938 |
fomc | 1,999 | President Poole. | 4 |
fomc | 1,999 | Mr. Chairman, economic conditions in the Eighth District are largely the same. Some industries and some geographic regions are doing a little better and some are doing a little worse, but the overall picture is certainly one of steady, sustained growth without undue strains or problems. Two of my contacts, one at FedEx... | 861 |
fomc | 1,999 | Governor Gramlich. | 4 |
fomc | 1,999 | Thank you, Mr. Chairman. Before I comment on current events, I would like to step back to another interesting time, the 1960s. At that time we thought the rate of productivity growth was high and the NAIRU was low, though we didn't call it NAIRU then. It turned out we were wrong on both counts. Both variables, which on... | 972 |
fomc | 1,999 | President Jordan. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. In the material we received at the hotel last night was the proposed draft statement of the directive, which begins: "The information reviewed at this meeting suggests that the expansion in economic activity has moderated in early 1999." I was curious whether I would hear that view expressed ar... | 1,252 |
fomc | 1,999 | I think we can break for coffee. | 8 |
fomc | 1,999 | Don Kohn has the floor. | 7 |
fomc | 1,999 | I will be referring to the table marked "Financial Conditions." 2/ Once again the Committee is faced with considering policy against the backdrop of unexpected strength in output and weakness in inflation. Central to that consideration would seem to be the need to determine whether financial conditions are consistent w... | 2,259 |
fomc | 1,999 | Questions for Don? If not, let me get started. For quite a while our Greenbook and indeed all models have been projecting slower economic growth and higher inflation than actually have materialized. Looking back, it is conceivable and perhaps likely that the major explanation for these projection errors is that the mod... | 2,613 |
fomc | 1,999 | Mr. Chairman, I not only support but applaud your recommendation. I think an announcement of a tightening in policy at the present time would make us seem oblivious of what is going on in the world. But perhaps even more seriously, with a complete absence of inflation, it would put the Committee on record as being oppo... | 96 |
fomc | 1,999 | President Poole. | 4 |
fomc | 1,999 | Mr. Chairman, if I were a voting member I would, with respect, dissent from your recommendation. I want to explain why. First of all, I believe the appropriate inflation goal, properly measured, is zero in principle. As I translate that into price indexes, it gives me a CPI somewhere in the area of 1 or 11/2 percent, g... | 518 |
fomc | 1,999 | President Boehne. | 5 |
fomc | 1,999 | I support "B" symmetric. I don't think there has been enough of a change since the last FOMC meeting to warrant a change in our basic directive. As far as what we stand for, I don't think our primary objective is zero inflation. In my view, our primary objective is maximum sustainable growth, and low inflation is simpl... | 198 |
fomc | 1,999 | President Broaddus. | 5 |
fomc | 1,999 | Mr. Chairman, my views on policy are related to a couple of the points I made earlier in the economic go-around. First, as the Greenbook indicates and as you have stated very eloquently, we are looking at an acceleration of productivity in this country. If that is true, that implies an increase in real interest rates. ... | 340 |
fomc | 1,999 | President Parry. | 4 |
fomc | 1,999 | Mr. Chairman, I basically agree with your recommendation. I am somewhat more inclined to favor the adoption of an asymmetric directive to the upside. But, quite frankly, there does not seem to be much risk in waiting to see how events unfold between now and the next meeting. | 55 |
fomc | 1,999 | President Moskow. | 4 |
fomc | 1,999 | Mr. Chairman, based on our discussion today, the most serious concern is the inflation outlook for the year 2000. Our current policy stance is too expansionary relative to the acceleration in inflation projected in the Greenbook and in our outlook as well. I don't think it is important to shift policy now but if we acc... | 189 |
fomc | 1,999 | President Stern. | 3 |
fomc | 1,999 | I support your recommendation of "B" symmetric. I will elaborate very briefly by saying that if I were a betting man, given initial conditions, I would bet that our next move is more likely to be an increase in the federal funds rate than a decrease. But I don't have any conviction about its timing and I don't see anyt... | 149 |
fomc | 1,999 | President Guynn. | 4 |
fomc | 1,999 | Mr. Chairman, as is evident from my comments during the earlier go-around, I am a little less comfortable with waiting to have obvious inflation "in our faces," as the teenagers say, and I am perhaps at least a bit more inclined to support forward-looking and preemptive policymaking. Having said that, if I had a vote t... | 203 |
fomc | 1,999 | Governor Gramlich. | 4 |
fomc | 1,999 | Thank you, Mr. Chairman. I support your recommendation for "B" symmetric. I am asymmetric in my head but, as long as there is the luxury of time, I think we can afford to move against an acceleration of inflation or super rapid economic growth when we see it. Otherwise, I don't think we should act because we are sure t... | 108 |
fomc | 1,999 | President Minehan. | 4 |
fomc | 1,999 | I agree with your position on policy, Mr. Chairman. I might be a little more comfortable with an asymmetric as opposed to a symmetric directive, but if I had a vote, I probably could live with a symmetric directive as well. For some time I have been concerned about what I referred to in my comments earlier as a party b... | 419 |
fomc | 1,999 | Governor Ferguson. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. I support both halves of your recommendation. I think we are struggling with an important issue: Do we act based on forecasts or do we, as Don Kohn said in his statement, look for evidence in the incoming data? In part the challenge is that since the forecasts have been inaccurate, we are force... | 204 |
fomc | 1,999 | Governor Meyer. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. I can support your recommendation for no change in the federal funds rate target today. In my view, however, monetary policy should be biased toward tightening going forward. Let me explain why and then confront the issue of whether or not a move to an asymmetric bias should be made and announc... | 483 |
fomc | 1,999 | Governor Rivlin. | 4 |
fomc | 1,999 | I also concur in your recommendation, Mr. Chairman. I don't see any evidence that inflation is a clear and present danger in the United States at the moment. I concur with Ed Boehne and others that what we really should be focused on is maximizing sustainable growth. We don't know exactly what that is. And I am unconvi... | 148 |
fomc | 1,999 | President Jordan. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. I agree with what Bill McDonough said at the outset: It is highly likely that if we were to take a firming action today, it would be interpreted in view of the strong growth numbers as being antigrowth, and that would be very undesirable. It is also true, in view of the stock market finally clo... | 622 |
fomc | 1,999 | Governor Kelley. | 3 |
fomc | 1,999 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 1,999 | President McTeer. | 5 |
fomc | 1,999 | I support your recommendation and I agree with it in both respects. At our last meeting we voted for no change and a symmetric directive. As I indicated earlier, two months of statistics have come in since then. They continue to show employment growth, a low unemployment rate, very strong output growth, and contemporar... | 131 |
fomc | 1,999 | President Hoenig. | 4 |
fomc | 1,999 | Mr. Chairman, understanding the difficulties of these decisions, I would still recommend that we tighten and that we present the tightening as an unwinding of the actions that we took in the midst of the crisis last fall. Last summer we were continuing to experience strong growth in economic activity and jobs. We took ... | 189 |
fomc | 1,999 | Thank you. The majority of the voting members appears to favor "B" symmetric. Could you read the directive, including the change that has been recommended in the general paragraphs? | 35 |
fomc | 1,999 | I will begin with that, Mr. Chairman. There is a change in the very first sentence of the general paragraphs. Basically, it involves dropping the words "has moderated." So the first sentence would read: "The information reviewed at this meeting suggests that the expansion in economic activity is still robust." Moving o... | 168 |
fomc | 1,999 | Call the roll. | 4 |
fomc | 1,999 | Chairman Greenspan Yes Vice Chairman McDonough Yes President Boehne Yes Governor Ferguson Yes Governor Gramlich Yes Governor Kelley Yes President McTeer Yes Governor Meyer Yes President Moskow Yes Governor Rivlin Yes President Stern Yes | 45 |
fomc | 1,999 | May 18 is the date of our next meeting. We will now adjourn for lunch. | 19 |
fomc | 1,999 | Who would like to move to approve the minutes of the March meeting? | 14 |
fomc | 1,999 | So move. | 3 |
fomc | 1,999 | Without objection they are approved. Mr. Fisher, you have the floor. | 15 |
fomc | 1,999 | Thank you. I will be referring to the package of charts in front of you.1/ I will be discussing three distinct topics this morning: first, recent interest rate and exchange rate developments; second, the recent behavior of the funds rate and Desk operations; and third, some preliminary thoughts about the Y2K issues the... | 3,159 |
fomc | 1,999 | Peter, in the event, a low probability event, of very significant runs on smaller banks for currency withdrawals or deposit transfers, do those banks have enough collateral to come to the discount window and liquefy the asset side of their balance sheets to weather that drain? | 53 |
fomc | 1,999 | I would not consider myself the System's leading expert on the subject. I think they have collateral. At the discount window we can take pretty much anything they have in terms of customer notes. | 38 |
fomc | 1,999 | I know we can do that, but I am wondering what they have. | 15 |
fomc | 1,999 | Well, if your question relates to what collateral we currently have in our possession, I should note that we also take on-site collateral in some cases. The discount officers have been working on this issue, writing letters encouraging the banks to get their collateral in and pledge it, but we are not there yet. | 61 |
fomc | 1,999 | Suppose a bank holds a note of a long-term friend of the bank's president, which is 10 percent of the asset side of the balance sheet. Let's say everything about the loan looks fine: It's a performing loan and the bank itself is perfectly comfortable with it; indeed, it is a terrific loan. Can we accept that? | 68 |
fomc | 1,999 | Yes. | 2 |
fomc | 1,999 | Yes, with a haircut. If it's a loan, there is a haircut because it is not marketable and is therefore hard to value. And there's a further haircut if it is a long-term loan. | 41 |
fomc | 1,999 | Now the premise changes and the good friend of the president of the bank is in evident difficulty, not in servicing the loan but in repaying it at the end of its term. What is the point at which we effectively throw these people into bankruptcy? | 50 |
fomc | 1,999 | That is the issue that I think the most thoughtful institutions in the market are anxious about in terms of Y2K concerns: What will be good business practice with regard to closing out counterparties? How many grace days are going to be appropriate? Will this be a one-day hurricane and then everything will be back to n... | 157 |
fomc | 1,999 | But we are the only lender of last resort. | 10 |
fomc | 1,999 | Absolutely. But if you think of banks as big as Chase or Citibank, it's a virtual certainty that some of their customers will have computer problems. | 31 |
fomc | 1,999 | I think our supervisors would be looking at the fundamental soundness of those customers and whether the liquidity problem is a short-term or a long-term problem. I thought your question had to do with whether this particular customer might be in a difficult long-term situation so the viability- | 54 |
fomc | 1,999 | I am concerned about our being in a position where we are unprepared to make judgments on which banks we effectively will shut down because we are not going to accept their paper at the discount window and by definition there is no other lender of last resort. | 50 |
fomc | 1,999 | Our supervisory people are working very closely with the other supervisory authorities through the FFIEC to make sure that the lines of communication are open and that thought has been given to these very points in advance of the year-end. So it is very much on the agenda of the contingency planners. I don't know if th... | 76 |
fomc | 1,999 | Communication is fine. But suppose somebody at the other end of the line says: "Hey, I am drowning. What are you going to do for me?" | 32 |
fomc | 1,999 | Well, I would point out that in the middle 1980s in Chicago and through the late 1980s and early 1990s in New England and Texas, we made huge volumes of loans to banks that had a lot of bad assets without ever impairing our collateral position. For most banks, if we look hard at the assets they have, I think we can get... | 83 |
fomc | 1,999 | I think that is the judgment we have to make. All I am suggesting is that we try to make it in advance. | 25 |
fomc | 1,999 | That is why, as Peter noted, we are urging very strongly that banks come in ahead of time to pre-position collateral and talk to the discount officers. | 31 |
fomc | 1,999 | Mr. Chairman, Don is correct that we are doing that. The discount officers are urging both small banks and large banks to have their borrowing documents up-to-date and their collateral in place ahead of time. But given the number of people involved and the speed with which this is happening, it seems clear that many ba... | 87 |
fomc | 1,999 | We can make a judgment as to whether we are looking at a systemic risk, in which case we can act under certain provisions specified in the Federal Reserve Act. But what do we do if the risk is not obviously systemic but a very significant problem for, say, Texas or some other area where there is a multitude of small ba... | 67 |
fomc | 1,999 | Don, are banks executing all-asset pledges? Isn't that a way to-- | 17 |
fomc | 1,999 | I am not sure, Bob. | 7 |
fomc | 1,999 | We have done that in the past. | 8 |
fomc | 1,999 | We have done that with banks. The Bank of New York is a classic example where we took the building, the furniture, virtually everything as collateral. In this case, we have the complication of the Home Loan Banks. | 44 |
fomc | 1,999 | I think we did some variant of that for smaller institutions at the time of the New England banking crisis. We can do these things fairly fast but it is hard to do so for multiple institutions fairly fast. | 41 |
fomc | 1,999 | But there is a problem with the Federal Home Loan Banks. | 12 |
fomc | 1,999 | Right. We are working on that. | 8 |
fomc | 1,999 | The other issue we have been tracking on a monthly basis is how many banks versus how many thrifts have filed their documentation and pledged collateral. We are at close to 70 percent on the banks. The thrifts are the concern. | 47 |
fomc | 1,999 | President Poole. | 4 |
fomc | 1,999 | I have a very quick comment. My impression is that a lot of the small institutions are not setting up lines with us because they are assuming that the Home Loan Banks will provide the liquidity. It is not obvious to me that the Home Loan Banks know where they are going to get their liquidity. So I would think that's a ... | 121 |
fomc | 1,999 | If we backstop that system, it will be difficult to unwind it because they are going to want to keep it in place. | 26 |
fomc | 1,999 | I agree with that. That is why I think we might be able to get them to be more explicit about how much they will be able to provide through their own resources so that the banks will realize that they must backstop themselves with us. In my conversations with small banks, there is this presumption that it is all taken ... | 90 |
fomc | 1,999 | Certainly not on the cash side. | 7 |
fomc | 1,999 | Vice Chairman. | 3 |
fomc | 1,999 | The Home Loan Banks put out a statement, over the weekend I believe, which I read as saying: We will take care of all the banks we deal with but maybe we won't, so then you will have to go to the Fed. That puts us in an untenable position. We have to increase the pressure as we get into the summer because we really can... | 168 |
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