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fomc | 1,999 | We don't know and can't know what is over the horizon. Inflation may be on the verge of accelerating or it may not be. Certainly a strong case can be made that it is. But a similarly strong case could have been made this time last year and this time the year before. Had we tried to enforce the speed limit based on cont... | 339 |
fomc | 1,999 | President Moskow. | 4 |
fomc | 1,999 | Thank you, Mr. Chairman. I have just a few comments on the longer term. First, I too was very impressed by the discussion we had at our board meeting of the Chicago and Detroit directors when they gave their presentations about electronic commerce. We did it a little differently. We divided the board ahead of time into... | 653 |
fomc | 1,999 | I think the conversation around the room is making us more Jordanian than we had been. President Minehan. | 22 |
fomc | 1,999 | Thank you, Mr. Chairman. I have thought for some time that we needed to take back at least a portion, if not all, of the ease in monetary policy that we enacted last fall in the face of chaotic financial markets. Certainly, the prospects for external growth, the fact that we have not yet seen a rise in inflation, and t... | 859 |
fomc | 1,999 | Thank you. As I read the Committee, we're strongly in support of a 25 basis point increase and modestly in support of symmetry. So I would suggest that we read the directive in that context and then proceed to vote. | 46 |
fomc | 1,999 | This time we're on page 22 of the Bluebook, at the bottom of the page: "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 increasing the federal funds rate to an average of around 5... | 100 |
fomc | 1,999 | Let's vote. | 3 |
fomc | 1,999 | Chairman Greenspan Yes Vice Chairman McDonough Yes President Boehne Yes Governor Ferguson Yes Governor Gramlich Yes Governor Kelley Yes President McTeer No Governor Meyer Yes President Moskow Yes President Stern Yes | 41 |
fomc | 1,999 | I have drafts of a number of different announcements concerning this decision, and I'll read the one that I think most closely reflects the Committee's views: The Federal Open Market Committee today voted to raise its target for the federal funds rate 25 basis points to 5 percent. Last fall the Committee reduced intere... | 220 |
fomc | 1,999 | I think that's good. SEVERAL. Yes. | 11 |
fomc | 1,999 | Okay. | 2 |
fomc | 1,999 | A Nobel prize for Don Kohn! | 8 |
fomc | 1,999 | Yes. | 2 |
fomc | 1,999 | We're early for lunch, but coffee is available. [Laughter] August 24 is the date of the next meeting. | 25 |
fomc | 1,999 | Good morning, everyone. Would somebody like to move approval of the minutes for the June 29-30, 1999 meeting? | 27 |
fomc | 1,999 | So move. | 3 |
fomc | 1,999 | Without objection. We need to elect Ms. Cumming and Mr. Howard as Associate Economists to serve until the election of their successors at the first meeting of the Committee after December 31, 1999. President McDonough, would you nominate your colleague? | 54 |
fomc | 1,999 | Yes, I would like to nominate Christine Cumming for that position. She has a Ph.D. in economics from the University of Minnesota and is a very highly regarded career professional at the Federal Reserve Bank of New York. Most recently, before we put her in charge of our research group, she was the brain trust for the ba... | 85 |
fomc | 1,999 | First of all, would somebody second the motion? SEVERAL. Second. | 16 |
fomc | 1,999 | Any discussion? All in favor say "aye." SEVERAL. Aye. | 17 |
fomc | 1,999 | The "ayes" have it. Karen Johnson, would you do the honors for David Howard? You do know him, I hope! | 27 |
fomc | 1,999 | Yes. Dave Howard has been a member of the Board's Division of International Finance for almost 25 years and has worked in several of the areas of the division. Recently, owing to the passage of time and the departure of some people, he was promoted to Deputy Director of the division. He has a Ph.D. from the University ... | 105 |
fomc | 1,999 | Move approval. | 3 |
fomc | 1,999 | Second. | 2 |
fomc | 1,999 | I assume no discussion is required, at least I trust not. If so, the presumption is that David Howard is elected unanimously. I'd also like to recognize First Vice President Jamie Stewart who is attending his first meeting. We welcome you. Peter Fisher, would you review developments in foreign currency and domestic fin... | 68 |
fomc | 1,999 | Thank you, Mr. Chairman. In front of the members of the Committee is a package of charts, similar to the one I usually show.1/ I will begin by addressing agenda item 3, my report on markets and the Desk's activities. The first page, covering the period from June 1 through August 20, presents a slightly different config... | 2,751 |
fomc | 1,999 | Questions for Peter? President Minehan. | 8 |
fomc | 1,999 | Peter, I don't have a problem with the proposed change in the limits under the SOMA securities lending program, but I do have a question. Apparently you have identified more than one dealer misusing the program, trying to gain some kind of dominance in a particular issue at a particular time. I know that in such cases ... | 119 |
fomc | 1,999 | Let me distinguish a couple of things. First, if I thought the management of any dealer firm was not taking seriously the intent of our program, we would escalate the issue rather quickly. I believe the problem we've had in the first three months of the program is that some traders looked to take what advantage they co... | 253 |
fomc | 1,999 | That will help. | 4 |
fomc | 1,999 | But not changing the per-dealer bid I am hopeful will reduce the potential for dealers thinking they can make something of this. So that is one incentive for us to raise the limits at this time. | 40 |
fomc | 1,999 | President Hoenig. | 4 |
fomc | 1,999 | Peter, I have another question along those lines. When you brought this before the Committee the concept, as you've just suggested, was more or less as a lender of last resort. But the frequency of use over the period strikes me as being far more than last resort; it seems to me to be part of an everyday facility. Why ... | 79 |
fomc | 1,999 | There are quite a few different U.S. Treasury securities outstanding. For any one of them, I don't think the frequency of use is continuous other than for on-the-run issues. But one of our major incentives in this program was to try to reduce the risk of fails to deliver in the on-the-run issues. So we always anticipat... | 262 |
fomc | 1,999 | We probably should expect at least as much usage going forward? | 12 |
fomc | 1,999 | Yes. | 2 |
fomc | 1,999 | Further questions for Peter? | 5 |
fomc | 1,999 | Shall I move approval of the domestic operations? | 10 |
fomc | 1,999 | I would suggest that somebody had better do so. [Laughter] Without objection, they are approved. Item 4 on the agenda is a very important issue being brought before this Committee. It is one that probably is ripe for discussion and certainly it was not at an earlier stage. But by now I believe we are all beginning to g... | 460 |
fomc | 1,999 | Thank you, Mr. Chairman. Included in my package of charts are two pages of outline notes that you can follow as I speak. You also have a one-page document containing a revised list of the votes that I will be requesting. They provide a guide to my specific requests. In that regard, there is some revision from those in ... | 1,385 |
fomc | 1,999 | Let's do that now. | 5 |
fomc | 1,999 | Peter, I don't have a big problem with what you are proposing, but I think some of the principles in the 1977 Guidelines are quite valuable. I'm thinking especially of the first two. I'm wondering if we really need to suspend those to get what you want. Might it not be possible to suspend some of the guidelines but not... | 71 |
fomc | 1,999 | As you may recall, in my August 17 memo I proposed that the Committee act upon my request with the understanding that we would still adhere to the principles incorporated in those first two paragraphs. I suggested that a statement to that effect could be included in the minutes of this meeting. I'm agnostic about the p... | 93 |
fomc | 1,999 | It's mainly the fourth one that gives you the difficulty, right? | 13 |
fomc | 1,999 | It is paragraphs four and five that are giving him difficulty. I think keeping the first two paragraphs and suspending the rest would be fine. That would accomplish the objective. | 34 |
fomc | 1,999 | That is basically what was suggested in the memo. | 10 |
fomc | 1,999 | This would be a more formal way of doing that. | 11 |
fomc | 1,999 | It is identical in spirit to what I was suggesting in my August 17 memo. I'd be happy not to suspend those first two guidelines. | 28 |
fomc | 1,999 | Right. | 2 |
fomc | 1,999 | President Parry. | 4 |
fomc | 1,999 | I have a question about the reserve needs. The Treasury balance is expected to be twice as high as usual at year-end. What are the major reasons for that? | 33 |
fomc | 1,999 | The Treasury is forecasting its total cash balance at roughly double what it was last year. I'm not expert in this; Don Kohn or someone on his staff may be better qualified to respond, but $20 billion of that has to do with the rules Congress passed for-- | 54 |
fomc | 1,999 | Credit unions. | 3 |
fomc | 1,999 | So that bumps the level up considerably. Then the rest is a safety buffer for the Treasury. | 19 |
fomc | 1,999 | That's so they can meet their obligations very early in the year if people have trouble getting cash to them. They want to be certain they will have plenty of cash to meet their needs. | 37 |
fomc | 1,999 | Let me underscore that our problem in this area is that the Treasury's starting point, when they told us about this, was that they were going to put all this cash comfortably in Treasury Tax & Loan (TT&L) accounts. I just don't believe it is going to sit there. I think the banks are going to push that back to us. I mig... | 130 |
fomc | 1,999 | I assume, incidentally, that that will increase the supply of Treasury securities available as collateral by a comparable amount. | 23 |
fomc | 1,999 | Yes, but the TT&L banks will have to have additional- | 14 |
fomc | 1,999 | No, I wasn't referring to the TT&L accounts. I'm saying that if Treasury uses the cash to build up its TT&L accounts or its balances at the Federal Reserve, it would not be paying off Treasury securities. | 45 |
fomc | 1,999 | That's right. If the cash is in the TT&L system, the banks have to have collateral against that; and if it is on our balance sheet, we'll have to get collateral somewhere. It won't be one-for-one in Treasury bills. There will be a little more supply out there, but the asset side of the balance sheet- | 68 |
fomc | 1,999 | I'm trying to say that they are supplying a goodly part of the net new demands as a consequence of that. | 23 |
fomc | 1,999 | Yes. | 2 |
fomc | 1,999 | So it's largely a zero-sum game in this particular discussion. | 13 |
fomc | 1,999 | Yes. | 2 |
fomc | 1,999 | I have another question on needs with regard to currency. There is no indication at this point, is there, that the estimates on currency needs are anything different from what we've been assuming? | 37 |
fomc | 1,999 | Well, currency in circulation is still running ahead of normal, obviously, so there is some early store of value accumulation going on. | 26 |
fomc | 1,999 | But I mean the amount that we've accumulated is also running far ahead of normal. | 16 |
fomc | 1,999 | Yes, by some $300 billion. | 8 |
fomc | 1,999 | We don't see any reason to think that the Federal Reserve won't have many times the amount of currency that will be demanded in the fourth quarter. That's not an issue. I think the issue is how much will be outstanding in the hands of the public and, therefore, how many assets the Federal Reserve will need to hold to o... | 67 |
fomc | 1,999 | Exactly. But I was wondering if anything has led us to revise our estimates on that? | 18 |
fomc | 1,999 | No. We've done some analysis of the surveys that have been done of households. Interestingly, they tend to cluster around the $500 per household level--if we make some assumptions and drop out the extremes--that we used for our planning purposes. Now, even that may be high. But, as best we can ascertain, the intentions... | 95 |
fomc | 1,999 | Okay. | 2 |
fomc | 1,999 | We have been doing some thinking about this in New York. One issue that is novel, at least in my thinking in the last month, is that if currency is going to flow more quickly through the banking system--that is, when banks draw on us and the cash goes out--there will be less of a benefit in holding vault cash. That's b... | 187 |
fomc | 1,999 | When the "howl" level goes up, you'll understand it very much more quickly! | 18 |
fomc | 1,999 | Yes, I think you're right. There are a lot of uncertainties here. | 15 |
fomc | 1,999 | President Minehan. | 4 |
fomc | 1,999 | I just want to speak to that issue and partly to the issue you raised at the outset, Mr. Chairman. My own view is that there is a very big gap at present between reality and perception, particularly in the markets. The reality is that at least with regard to U.S. domestic markets, things are in really good shape, as yo... | 418 |
fomc | 1,999 | Further questions for Peter? Would somebody like to move the authority? | 13 |
fomc | 1,999 | So move, Mr. Chairman. | 7 |
fomc | 1,999 | All in favor say "aye." SEVERAL. Aye. | 14 |
fomc | 1,999 | Opposed? The "ayes" have it. | 10 |
fomc | 1,999 | Turning to Item B, I would like to ask the Committee to amend the Authorization permanently to give the Desk authority to operate for periods of up to 90 days in our repurchase agreement operations. To be candid, as my memo says, with the benefit of hindsight I wish I had asked for that authority last year when the Com... | 256 |
fomc | 1,999 | Questions for Peter on this issue? | 7 |
fomc | 1,999 | Move approval, Mr. Chairman. | 7 |
fomc | 1,999 | Is there a second? | 5 |
fomc | 1,999 | Second. | 2 |
fomc | 1,999 | All in favor say "aye." SEVERAL. Aye. | 14 |
fomc | 1,999 | The "ayes" have it. | 7 |
fomc | 1,999 | Item C, to amend temporarily the Authorization for Domestic Open Market Operations to authorize reverse repurchase agreements, I would like to try to explain in some detail. Matched sale purchases and reverse repurchase agreements are functionally equivalent transactions. But the prior view in the System had been that ... | 785 |
fomc | 1,999 | I would suggest, since your coughing suggests that you're dying, that we have Norm Bernard read the paragraph! | 21 |
fomc | 1,999 | This would involve an additional paragraph to the Authorization under section 1, as Mr. Fisher was just mentioning. The new paragraph 1(c) would read: "To sell U.S. Government securities and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States t... | 122 |
fomc | 1,999 | Questions for Peter on that? | 6 |
fomc | 1,999 | Move approval, Mr. Chairman. | 7 |
fomc | 1,999 | Is there a second? | 5 |
fomc | 1,999 | Second. | 2 |
fomc | 1,999 | All in favor say "aye." SEVERAL. Aye. | 14 |
fomc | 1,999 | The "ayes" have it. Let's move to Item D. | 13 |
fomc | 1,999 | Mr. Chairman, turning to Item D, I'd like to ask for temporary authority to sell options on repurchase agreements, reverse repurchase transactions, and matched sale purchase transactions through the end of January 2000. The language, which we will come to, was in Don Kohn's memo to you of yesterday, which was included ... | 173 |
fomc | 1,999 | The point I was making was not solely the technical problem. I was referring even more to the psychological problem. | 22 |
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