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fomc | 1,999 | Thank you, Mr. Chairman. At your last meeting, many of you remarked that you were concerned that inflation would eventually turn up and you therefore saw monetary policy as more likely to firm than to ease, though you weren't sure when such action would be appropriate. The question for today's meeting would seem to be ... | 1,791 |
fomc | 1,999 | Questions for Don? | 4 |
fomc | 1,999 | Don, since you spent a fair amount of time on whether we should go asymmetric or symmetric, my question has to do with the wording in the directive that relates to the tilt. The way the current wording reads, the tilt applies to "the intermeeting period;" it does not say that we might act on the tilt at the next meetin... | 107 |
fomc | 1,999 | The Committee has discussed at length whether it should change the wording in the directive to be less specific about the intermeeting period and has had trouble finding a consensus about how to make that change since everybody seemed to have a different interpretation of the meaning of asymmetry. I think that problem ... | 133 |
fomc | 1,999 | Further questions for Don? If not, let me get started on the policy side. I would like to differentiate between history and forecasts. The history at this particular stage, with only very slight variations that have surfaced anecdotally in the last two or three weeks, is unequivocally that of a period of declining rate... | 685 |
fomc | 1,999 | That's a fair point. | 5 |
fomc | 1,999 | The trouble unfortunately is that, as a number of you have commented, the ECI cost data are probably not picking up a number of the nontraditional ways of paying people--training costs, stock options, and a few other forms of compensation. But leaving aside the uncertainties that are involved in measuring wages, the in... | 1,127 |
fomc | 1,999 | Mr. Chairman, I fully support your conclusions and the associated reasoning. I believe it would be very ill advised to raise rates today. Such a move would be taken as a knee-jerk reaction to the CPI number regarding which all of us have some questions. But to fail to adopt an asymmetric directive toward firming also w... | 176 |
fomc | 1,999 | Governor Rivlin. | 4 |
fomc | 1,999 | Mr. Chairman, I agree with your proposal. I don't see strong economic reasons for not waiting another month before making your proposed change even though only a tilt is involved. After all, the only really disturbing economic news is the core CPI for one month. But we may have to move in the next few months and, if so... | 136 |
fomc | 1,999 | President Broaddus. | 5 |
fomc | 1,999 | Mr. Chairman, what you are proposing is certainly a step in the right direction, but my preference would be to go ahead and move the funds rate up 1/4 percentage point today. I would respectfully disagree with Bill McDonough about the interpretation of such a move as a knee-jerk response. Some people might read it that... | 540 |
fomc | 1,999 | President Boehne. | 5 |
fomc | 1,999 | Your recommendation of announcing a tilt captures my sense of what we ought to do today. I think it strikes the right balance between showing that we are indeed awake at the switch and at the same time showing the appropriate restraint. Even more importantly, I believe it positions us either to act on the tilt in the f... | 92 |
fomc | 1,999 | President Guynn. | 4 |
fomc | 1,999 | I support your recommendation as well, Mr. Chairman, and I would echo the comments that President Boehne has just made. I also identify with President McDonough's comment that we may get an added kick from the announcement effect since it will be the first time that we inform the public about a change in the tilt immed... | 154 |
fomc | 1,999 | President Hoenig. | 4 |
fomc | 1,999 | Mr. Chairman, I felt last time and I feel now that we could appropriately identify an immediate move as an unwinding of our earlier effort to stabilize financial markets--an effort at which we were successful. I would prefer that explanation. At the same time, I would buy your recommendation today in terms of the tilt.... | 106 |
fomc | 1,999 | Governor Kelley. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. I certainly concur with your recommendation. I am a little concerned, however, about the interpretation of the tilt. In my view the Committee should not feel that it locks us in to an early move. Everyone no doubt recalls that last summer our directive was asymmetric toward tightening for three... | 143 |
fomc | 1,999 | Governor Meyer. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. I support your recommendation for no change in the federal funds rate target and enthusiastically support your recommenda tion for a move to an asymmetric directive that would be announced after the conclusion of this meeting. The balance of risks in my view is toward continued strong growth, p... | 502 |
fomc | 1,999 | President Minehan. | 4 |
fomc | 1,999 | Mr. Chairman, I too think that your recommendation is a step in the right direction. But, like President Broaddus, I would be more comfortable with an increase of 25 basis points in the funds rate that would in effect undo the last decrease that we made last fall. I think such a reversal could easily be justified in ou... | 338 |
fomc | 1,999 | President Stern. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. I support your recommendation. The most important thing to me in all of this is that we make an announcement because I believe it is very important at this stage that we give the public some sense of our thinking in the current environment. I would second Mike Kelley's emphasis on inserting som... | 82 |
fomc | 1,999 | President McTeer. | 5 |
fomc | 1,999 | I support your recommendation, although I still hope we won't have to follow through anytime soon. Also, I don't see why we couldn't make a modest change in the directive to refer to the "coming months" rather than to the "intermeeting period." | 50 |
fomc | 1,999 | President Poole. | 4 |
fomc | 1,999 | Mr. Chairman, I believe that the reference to the tilt needs to be announced this afternoon. That is the correct thing to do. I also associate myself with those who believe that a modest firming should be put in place now. I'd like to talk briefly about the analysis that underlies my views on policy. I don't think ther... | 917 |
fomc | 1,999 | President Moskow. | 4 |
fomc | 1,999 | Mr. Chairman, I agree with your recommendations of an asymmetric tilt and an immediate announcement. I am concerned about the high level of aggregate demand and the related outlook for inflation. It is important that we show we are concerned about inflation and are ready to take action. In my view, this step will help ... | 158 |
fomc | 1,999 | President Parry. | 4 |
fomc | 1,999 | Mr. Chairman, since we met in March we have had a number of conflicting signals about the future course of core inflation. Taken as a whole, however, I believe there are upside risks to inflation, although they may not be sufficient to warrant an increase in the funds rate at the present time. I must admit it would not... | 100 |
fomc | 1,999 | Governor Ferguson. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. I, like others, support your recommendation for a publicly announced tilt toward tightening. I believe the risks, supported by some very early signs in the data, are sufficient for us to change at least our tilt. In my view publicly announcing the tilt will give us sufficient room to move if th... | 241 |
fomc | 1,999 | President Jordan. | 3 |
fomc | 1,999 | Thank you, Mr. Chairman. As probably everyone knows and as Peter Fisher's charts showed, the level of intermediate- and long-term government yields in May of 1999 is almost exactly where it was in May of 1998. So, in looking at nominal interest rates and the yield curve, we are right back where we were a year ago, and ... | 320 |
fomc | 1,999 | Let's all go away for October! | 7 |
fomc | 1,999 | Right, let us just skip October. But I still believe in long lags, in variable lags too, but especially in long lags. I think our policy stance on balance has been more expansionary than was necessary or desirable for the environment in which we found ourselves. I say that even though we would have had to interrupt the... | 333 |
fomc | 1,999 | Governor Gramlich. | 4 |
fomc | 1,999 | Thank you, Mr. Chairman. I'll support the notion of instituting a tilt and announcing it. I am very glad we established this disclosure procedure because I think it gives us the ability to communicate more clearly. I am sitting four-fifths of the way from you to Al Broaddus both geographically and policywise. [Laughter... | 121 |
fomc | 1,999 | I think there is a consensus among the voting members in favor of alternative B asymmetric and an announcement. There is a question about the reference to the "intermeeting period" in the directive. I have a preliminary version of a press statement that we would use if the vote on changing to asymmetry is affirmative. ... | 148 |
fomc | 1,999 | Well, as my answer to President Hoenig suggested, I think you could go ahead with the present wording of the directive. It strikes me that people may not want to change the wording on the fly but would prefer to have a chance to think about the pros and cons before reaching a decision. So the Committee may want to reta... | 82 |
fomc | 1,999 | Okay, why don't we just leave the directive as is, but leave the issue open in the event that we want to go further. So, read the directive as is. | 35 |
fomc | 1,999 | I am reading from page 13 of the Bluebook: "To promote the Committee's long-run objectives of price stability and sustainable economic growth, the Committee in the immediate future seeks conditions in reserve markets consistent with maintaining the federal funds rate at an average of around 43/4 percent. In view of the... | 95 |
fomc | 1,999 | Call the roll please. | 5 |
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 | Let me read a proposed statement and get your reactions to it. "While the FOMC did not take action today to alter the stance of monetary policy, the Committee was concerned about the potential for a buildup of inflationary imbalances that could undermine the favorable performance of the economy and therefore adopted a ... | 161 |
fomc | 1,999 | That's good. It gets in all the elements. | 10 |
fomc | 1,999 | Is that acceptable? | 4 |
fomc | 1,999 | Excellent! | 2 |
fomc | 1,999 | We will issue this at 2:15 p.m. Our next meeting is June 29th and 30th and we adjourn for lunch. | 31 |
fomc | 1,999 | Good afternoon, everyone. Would somebody like to move approval of the minutes of the May 18 meeting? | 21 |
fomc | 1,999 | So move. | 3 |
fomc | 1,999 | Without objection. Mr. Fisher. | 7 |
fomc | 1,999 | Thank you, Mr. Chairman. I will be referring to the usual package of colored charts that is in front of you. 1/ Mr. Chairman and members of the Committee, four perceptions are currently influencing financial market behavior. It seems to me that each of these perceptions contains certain elements of truth but also, I fe... | 3,027 |
fomc | 1,999 | Questions for Peter? | 4 |
fomc | 1,999 | Just a quick question on your chart discussion, Peter: On the third page where you were talking about the cross rates, I am wondering as I read the portion of the bottom panel covering 1999 whether things may be changing. It looks as if the correlation between dollar/yen and euro/yen is diminishing in relation to what ... | 89 |
fomc | 1,999 | Our perception is very much that the daily changes are still being driven by the yen. The anxiety of the Japanese authorities is now as much focused on euro/yen as dollar/yen, and they intervened in euro/yen for the first time ever during this period. I agree with you but I think some other things are going on here; I ... | 323 |
fomc | 1,999 | President Parry. | 4 |
fomc | 1,999 | Peter, I have a question for you or Karen about the huge Japanese support of the yen. Has this intervention been sterilized completely or partially? The numbers are so large that they would have great significance for their monetary base, and I just wondered what the policy is. | 54 |
fomc | 1,999 | The normal course that I believe the Bank of Japan is following is that they sterilize this intervention. It is a very complicated arrangement. It's as if the Exchange Stabilization Fund, the equivalent accounting entity, could actually issue its own bills to the market to finance itself. That's in effect what the Bank... | 202 |
fomc | 1,999 | I think that "zero" is the magic word. Whatever intervention the Bank of Japan chooses to do, whether it is in domestic assets or in foreign exchange-and the latter is what they have been doing--they no longer have room on the downside at the very short-term end of the money market to lower interest rates any further. ... | 183 |
fomc | 1,999 | That is rather interesting because, of course, we often think about sterilization not necessarily in terms of the impact on rates but on the monetary base. | 30 |
fomc | 1,999 | At this point, the change in the Japanese monetary base doesn't seem to be having any particular implications. At least changes of this order of magnitude can't be perceived as being followed by changes, for example, in better lending conditions and increased bank credit creation. | 50 |
fomc | 1,999 | I think it is instructive that the Japanese are creating what essentially are very useful experiments in intervention, whether we call it sterilized or otherwise. As you may recall, they sold in U.S. dollars and bought yen a while back with very modest, if any, effects. They have done the reverse this time, except they... | 108 |
fomc | 1,999 | Peter, considering that the earlier version of the yen carry trade contributed so dangerously to the Thai baht explosion in July 1997, are you and your colleagues at other central banks able to track reasonably well the buildup of that so we can take any supervisory action that is appropriate? | 56 |
fomc | 1,999 | At the aggregate level, it is quite hard; the data are rather poor. At the firm level, I presume one can find out what decisions individual firms have made. Tracking this involves relying on anecdotal information. There was an attempt to tabulate some data for Japan, which was not very satisfactory. The results were pu... | 156 |
fomc | 1,999 | So some supervisory sniffing around might be appropriate? | 10 |
fomc | 1,999 | Yes, it is certainly easier to try to get a handle on it at the firm level. | 19 |
fomc | 1,999 | President McTeer. | 5 |
fomc | 1,999 | Peter, I think you have gotten a little too subtle for me and I am not sure I'm following you. Why did you choose to focus on this issue of whether it is a yen thing or a dollar phenomenon? What significance do you think that has for the Committee? | 54 |
fomc | 1,999 | I am worried about the risk that people perceive it as a dollar thing when in fact I think it is a yen thing. I think sloppy policies, sloppy policy reactions, and uninformed market behavior can result if people think they are responding to one stimulus when that stimulus really isn't the dominant one. So my first inst... | 100 |
fomc | 1,999 | Did Japan ever intervene with marks? | 7 |
fomc | 1,999 | No, they did not. They hold a few marks but I don't believe they ever formally intervened in marks. MR.MCTEER. So this could be the beginning of the euro as an intervention currency? This is the first time it was ever used that way? | 55 |
fomc | 1,999 | It was the first time it was used by the Japanese. I think it reflected a certain flamboyance on the part of the Ministry of Finance, trying to grab attention for itself in Tokyo. But also, to be fair, a lot of the pressures were emanating from the movement in euro/yen. So to the extent they wanted to respond, they rea... | 247 |
fomc | 1,999 | I believe your fourth point was that people seem to be reacting to rhetoric more than to the statistics. What was the significance of bringing that to our attention? | 31 |
fomc | 1,999 | I think the bond market has been focused on the words of members of this Committee, both for attribution and not, to an extent that I have not seen in my admittedly not very long tenure in this position. I find that disturbing in terms of the influence on policy. It looks to me as if this bond market has priced in a 25... | 86 |
fomc | 1,999 | Cumulatively? | 4 |
fomc | 1,999 | They have taken that 25 basis point increase in and out. I am not suggesting that that has any profound macroeconomic effect. But the in and out pricing repetitions have been in response to the rhetoric, not the economic data. That was my point. | 51 |
fomc | 1,999 | Do you think the announcement of the bias in the directive is part of this? | 16 |
fomc | 1,999 | Clearly something very different happened after the last meeting with the announcement of a bias. I said at the end of my remarks that there is a strange mix of what market players are anxious about and what they are complacent about. I looked for a way to express to the Committee what I thought they were anxious about... | 180 |
fomc | 1,999 | President Jordan. | 3 |
fomc | 1,999 | Some of the initial commentary I saw after the announcement by the Japanese in early June of their first-quarter number was along the lines that it was a statistical fluke or window-dressing. The view was that it wasn't real and that by year-end we would see the Japanese economy back in the tank again. A fair amount of... | 146 |
fomc | 1,999 | I certainly defer to Karen for a view on the real merits of what you've suggested. In terms of the view on the Street, I think most non-Japanese observers are still highly skeptical. They are not yet in the camp that thinks this is for real, although they are intrigued and are wondering where the opportunities may be. ... | 223 |
fomc | 1,999 | I will defer my comments on that until after the Chart Show, since we are going to go into some of those issues as we return to honest-to-goodness real economics! [Laughter] | 39 |
fomc | 1,999 | Any further questions for Peter? If not, would somebody like to move to ratify the transactions? | 20 |
fomc | 1,999 | Move approval of the domestic open market operations. | 9 |
fomc | 1,999 | Without objection. Let's move on to the Chart Show. Mike Prell. | 15 |
fomc | 1,999 | I don't know how real the economics are, but there are tangible charts to which we will be referring. 2/ I thought I'd begin with a brief update on the second quarter, taking into account a few data we've received since the Greenbook was completed. As usual at this point, we're still attempting to blend the labor marke... | 3,168 |
fomc | 1,999 | The general tone of developments abroad since the February chart show has been favorable. On balance, the repercussions of the spread of the global financial crisis to Latin America have not been as dire as we feared in February; signs of recovery in Asia have added to the sense that the crisis, as such, is at or near ... | 3,107 |
fomc | 1,999 | The final chart summarizes your forecasts. In short, the central tendencies--constructed here by dropping the high three and low three of the distributions for each variable--are closely in line with the staff's Greenbook numbers. Y2K effects are minimal. Perhaps more interesting--and potentially more relevant in light... | 242 |
fomc | 1,999 | Thank you very much. Questions for our colleagues? President Parry. | 14 |
fomc | 1,999 | Mike, I have a question about the Y2K effects. The quarterly impact of Y2K in the forecast is primarily an inventory effect. One gets the impression that there could be some effect--I don't know the size of it--that could work in an opposite direction in the sense that we hear of companies postponing projects. Many ban... | 148 |
fomc | 1,999 | We have taken account of three categories of effects here. One is a precautionary stockpiling, and we have a very modest amount of stockpiling occurring on the part of both households and businesses. Businesses in many cases will want to have some extra supplies on hand beginning in 2000 just in case the normal supply ... | 453 |
fomc | 1,999 | Okay. | 2 |
fomc | 1,999 | President Minehan. | 4 |
fomc | 1,999 | I have a follow-up question to that. I know that the numbers work out right and all of that, but the thought of having a first quarter with no growth that seems to be driven to a large extent by a Y2K inventory swing just doesn't feel right. I recognize that we are going into a period of slowing growth around that time... | 393 |
fomc | 1,999 | I would just reiterate the thought that we have really very small effects built in here. When they are annualized, they whip these numbers around. In the recent NAPM survey at midyear, one of the questions asked of the purchasing managers was what they might do. We tried to do some back-of-the-envelope calculations bas... | 453 |
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