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fomc
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We have some bits and pieces of information from various censuses and some notion about what the reports from the unemployment insurance system are suggesting about revisions to wage and salary income. On both sides of the ledger, the information points to upward revisions in the level of GDP this year. I should cautio...
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Thank you.
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President Poole.
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I can offer a little, but not much, insight into the Y2K inventory issue. My contact at UPS says that for its own planning purposes his company has been surveying its top 300 shippers. We are going to get more information on this survey before too long, but at this point he could share with me that their shippers expec...
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Further questions for our colleagues? If not, who would like to start the Committee roundtable discussion? President Minehan.
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Thank you, Mr. Chairman. Economic growth in New England remains about the same as it has been for some months. Employment is expanding at a bit above what could be considered a normal rate for the region and unemployment rates in all six states are quite low. In fact, New Hampshire is one of only a few states in the co...
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Let's go to President Moskow and then we'll break for coffee. I see some heads nodding. [Laughter]
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Thank you, Mr. Chairman. The Seventh District economy continues to expand at a moderate pace, with tight labor markets increasingly being cited as a factor constraining growth. Activity in the motor vehicle industry remains a key source of strength in the District. Industry contacts continue to expect 1999 to be a reco...
878
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Let's recess for coffee.
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President Parry.
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Mr. Chairman, the Twelfth District economy has expanded at a solid pace so far this year, although the disparity across states has increased. District payrolls expanded at a 2.4 percent rate during the first seven months of the year, down from the 3.1 percent pace of 1998. Employment growth rates in the fastest growing...
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President Broaddus.
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Mr. Chairman, we have not had a lot of change in our District since the last meeting. To jump to the bottom line, with one exception I'll mention in just a minute, we see relatively few signs of any deceleration in activity in our region. At the last meeting, I reported that consumer spending had been especially robust...
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President Guynn.
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Thank you, Mr. Chairman. Growth in the Sixth District remains healthy. Our regional economy seems to be expanding at approximately the same rate as the nation at the current time, although I continue to expect some slowing in housing. Residential construction is relatively stronger than the national numbers suggest, pe...
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President Hoenig.
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Thank you, Mr. Chairman. The economy in the Kansas City District remains quite healthy. It has slowed from the rather strong pace of last year but remains overall a very strong economy. Employment has improved modestly, although the growth rates have slowed, but we suspect that is as much a supply issue as a demand iss...
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President Boehne.
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Thank you, Mr. Chairman. The regional economy in the Philadelphia District continues to move up. Manufacturing has advanced modestly. Retail sales and tourist activity have been strong. Construction has increased. Employment is on an upward trend. Conditions in the financial sector are so-so, with loan demand reported ...
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Vice Chair.
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Mr. Chairman, the Second District's economy has shown renewed signs of strength in recent weeks, after some slowing in the second quarter. Despite increasing price pressures, there is no evidence of any broad-based pickup in inflation. Private sector job growth accelerated to a 3.1 percent annual rate in July from 1.7 ...
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President Jordan.
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Thank you, Mr. Chairman. On cars, trucks, and steel, which are all very important in our District, I can just say "ditto" to what Mike Moskow said: All are very strong in every dimension. Construction in the District also is very strong. is involved with the construction unions said that the best sign of the prosperity...
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President McTeer.
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The Eleventh District is apparently doing better than the Fourth District, where schoolteachers are moving into industry and bankers are beginning to teach school! Growth is still very strong in the District, but it has slowed just a little. Construction has been flat, net, due to concerns about overbuilding, rising in...
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President Stern.
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Thank you, Mr. Chairman. Most of the major economic trends in our District remain in place or have intensified recently. Consumer spending is healthy. Housing and nonresidential construction activity are strong. The manufacturing sector is doing well; the agricultural sector is not. Labor markets remain tight and I thi...
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President Poole.
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Mr. Chairman, conditions in the Eighth District are as they have been. The environment is good, and I do not have any particular news to report. I want to spend a couple of minutes on the information I have gotten from FedEx and UPS, which is rather interesting because it is a bit mixed in terms of the domestic economy...
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Governor Gramlich.
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Thank you, Mr. Chairman. My bottom line today is that I think the FOMC ought to do what it has to do at this meeting and then leave financial markets alone for a while, at least until the end of the year. What do we have to do? I would argue that rates are a bit low from three standpoints. Even if labor markets and inf...
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Governor Meyer.
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Thank you, Mr. Chairman. I read the recent data as consistent with a continued momentum in aggregate demand that is likely to support growth at or above trend in the period immediately ahead and maintain very tight labor markets. I see core inflation stabilizing amid signs of a dissipation or reversal of many of the fa...
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Governor Ferguson.
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Thank you, Mr. Chairman. It seems to me that the questions before us today are both factual and tactical. At a factual level, I believe the issue is whether or not we really are facing an end to the good news on inflation. There are certainly some reasons, based on the data, to believe that that may be the case. Over t...
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That is an improvement. I thought it was an indoor wedding.
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We are at least outdoors!
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Governor Kelley.
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Thank you, Mr. Chairman. I believe I am the final hitter in the lineup today and the day is getting on, but let me offer a brief summary of the situation as I see it, although this is admittedly rather repetitious. The economy continues to exhibit a great deal of fundamental strength though we may be getting a bit of t...
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Let's move on to Don Kohn.
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Thank you, Mr. Chairman. Judging from the remarks of policymakers, a further small increase in the federal funds rate would seem to be in the works at this meeting. Private domestic demand is expected to remain strong, at a time when the restraining effects of fiscal policy and of developments overseas will be diminish...
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Questions for Don? If not, let me proceed. Following up on a number of the issues that Peter Fisher raised at the beginning of our meeting, I have become increasingly concerned, somewhat surprisingly in a sense to myself, about what is looming out there in the Y2K area. My concern centers mainly on the increasing evide...
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Mr. Chairman, I fully support your recommendation. Let me just express a couple of thoughts. Since I believe that we are enjoying price stability and since I believe very firmly in the rather brilliant analysis that you have just presented, one might ask: Why are we tightening at all? In my view, the reason is that the...
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President Minehan.
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I, too, very much agree with your recommendation, Mr. Chairman. Although I might be a bit more inclined than others to view the prospects for increases in interest rates as more probable rather than less probable, at this point in time I think it is important to make a move and give some indication of then standing pat...
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President Poole.
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Mr. Chairman, I support the recommendation for a 25 basis point increase. The market expects it and not to move at this point would confuse the market. As for Y2K issues, I think our position ought to be that as we approach the close of the year we won't hesitate to change our policy if necessary. After all, we have sa...
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President McTeer.
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Mr. Chairman, like Governor Meyer, I look forward to the debate on the new economy and to seeing how the actual new economy will play out. But the test of the new economy will be marred if we burden it with interest rate increases based only on demand side considerations without equal consideration given to supply side...
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President Boehne.
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I agree with your recommendation to raise the funds rate 25 basis points and I strongly agree that we need a symmetric directive and that we ought to stay with that.
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Governor Gramlich.
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I support "C" symmetric, truly symmetric. I've never studied the statistical discrepancy and I don't want to get into the question of whether we ought to be looking at the income side or the product side; I take no position on that. But I do like it when you talk about this because it makes me less worried about inflat...
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Governor Ferguson.
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I have to endorse what Governor Gramlich said on all counts.
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President Stern.
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I favor both aspects of your recommendation, Mr. Chairman--that is, the increase in the federal funds rate objective and the symmetric directive. I would add that I will be mildly surprised if we don't wind up deciding that we need to move the funds rate up a bit further before too long. But I think a symmetric directi...
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President Moskow.
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Mr. Chairman, I support your proposal for a 25 basis point increase and a symmetric directive. However, on the directive I just want to associate myself with what President Poole said about symmetry and asymmetry. In my view we should not be using that tool for the foreseeable future even though I agree with President ...
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President Parry.
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Mr. Chairman, I'm increasingly concerned that aggregate supply may not keep up with aggregate demand, particularly in light of a probable pickup in foreign demand. If that turns out to be the case, we risk an acceleration in inflation at a time when I'd personally like to see further progress toward price stability. I,...
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President Hoenig.
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Mr. Chairman, I agree with your recommendation on the rate increase, and I strongly support the symmetric directive. I say that because if we do in fact make the 1/4 percentage point move, we can sit back and analyze its effects, analyze the data, and then move again when a change is called for. I don't think we need t...
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Governor Meyer.
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Thank you, Mr. Chairman. I support your recommendation for a 1/4 point increase in the funds rate and the continuation of the symmetric directive. I want to focus a bit, though, on the issue of whether we need not just a symmetric directive, but a "truly symmetric" directive. And I'm going to give a contrary perspectiv...
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President Guynn.
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Mr. Chairman, I think a 1/4 point tightening is the right move today, and for all the reasons that have been articulated I think a symmetric directive is the right place to rest until we can sort this issue out. I also want to comment, although it is not to be decided by this group, that I hope the Board will consider ...
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Governor Kelley.
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I concur with your recommendation, Mr. Chairman, for all the reasons that have been expressed around the table.
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President Broaddus.
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Mr. Chairman, I agree with your recommendation to increase the rate. As far as the tilt is concerned, my position is still what it was before. I recognize all the issues that have been raised here. But looking at all of the information we have and giving full weight to your comment that we are probably going to have to...
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President Jordan.
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A large and rapidly growing trade deficit or current account deficit says to me that demand for products in the United States has been growing at an ever faster rate relative to the pace at which we can produce them. So far, we've been blessed by the savings of the rest of the world, as poor as the rest of the world is...
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We have a consensus on "C" symmetric, 25 basis points. Would you read the appropriate language?
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I'm reading from page 15 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 increasing the federal funds rate to an average of around 51/4 percent. In view of the e...
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Call the roll.
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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
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At the termination of this meeting I'm going to ask that the Board of Governors meet separately to consider the requests of a very large number of the Reserve Banks to move the discount rate up 25 basis points. In the event that the Board goes along, I would propose to release the following statement with respect to ou...
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Would someone like to move approval of the minutes for the meeting of August 24th?
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So move.
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Without objection, they are approved. Mr. Fisher.
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Thank you, Mr. Chairman. I will be referring to the package of colored charts that should be in front of you. 1/ I offer the array of forward rates shown in the first chart as a precaution against any thought that there is a simple, single description of interest rate expectations, given the pronounced Y2K effects we'r...
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Thank you. Questions for Peter? President Broaddus.
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Peter, with respect to the last point, I remember that about a year ago-or maybe not that long ago--we talked about your securities lending program. Are you going to use that at all in the year-end program? Would you use that if you had a shortage of collateral?
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Earlier this summer we raised the amounts we're auctioning off through that program and it is in a sense on autopilot. Without getting too far into the arcana, that program actually is one of the things I'm worried about. We price that at a negative spread, 150 basis points off of the general collateral rate. If the ge...
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President Minehan.
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Don Kohn in the Bluebook discussion and you in your discussion of the weekly data referred to the rather positive impact, in terms of spreads and so forth, of your announcement of these year-end facilities to deal with Y2K uncertainties. But there has been a bounceback subsequent to that. What do we know about that? Is...
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I think two factors are involved that are hard to put one's finger on. Traders at many different firms have talked to us about the fact that our options program provided them some relief but in their minds provided the Committee with more flexibility to raise rates in November and December. As I say, they talk about th...
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But do you really have a sense that some of the--I don't know how to characterize it--feeding frenzy or hysteria has abated a bit?
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The dealer firms certainly now feel a little more comfortable that they have a flexible tool or "flood insurance" to manage their balance sheets at the end of the year. I think that has put them in the position that they can't turn around and tell their customers, "Gee, we just can't do anything for you." It has forced...
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Concerning the issue of liquidity, is "flood insurance" the appropriate language? [Laughter]
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I'm sorry. I got that term in my mind in late August and I should take it out again. I have some neighbors who had some serious flood damage who didn't have flood insurance.
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Call it drought insurance.
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I would just add that I think one important reason the swap spread came down and stayed down was the announcement effects on the mortgage-backed securities market in particular, which is closely related to the swap market. But another reason was that the flood of issuance that had been anticipated for September really ...
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Further questions for Peter? If not, who would like to move approval?
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Move approval of the domestic operations.
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Without objection they are approved. Shall we move to the staff reports of Mr. Prell and Ms. Johnson?
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Thank you, Mr. Chairman. As we noted in the Greenbook, the information received since the last meeting has strongly confirmed the notion that the low GDP growth reported for the second quarter grossly overstated any moderating tendencies in the economic expansion. Indeed, the data available as of last Wednesday persuad...
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The basic message from the external sector this round is that economic activity in the rest of the world seems to be strengthening even more than we--and most other forecasters--had expected. There were several positive surprises concerning activity in the second quarter, such as small, positive real GDP growth in Japa...
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Questions? President McTeer.
7