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fomc | 1,999 | So do I. | 4 |
fomc | 1,999 | I am now inclined to announce the asymmetry. The current members preferred that option by a 5 to 4 margin, but if we include those who are not currently members of the Committee, there is a very clear majority in favor of announcing the asymmetry. On an issue such as this, which commits the Committee in a broader sense... | 123 |
fomc | 1,999 | Yes, Mr. Chairman. I will be 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 51/4... | 102 |
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 President Stern Yes | 41 |
fomc | 1,999 | We have a draft statement, which I'd like to circulate so everyone can take a look at it instead of my reading it. I can read it but I think it would be helpful for you to have the text in front of you. I'll wait until it's distributed. [Pause] Does anybody have any comments? | 62 |
fomc | 1,999 | I have a question about something that wasn't raised in the discussion because I didn't think about it until after I listened to everybody. It may be too late to raise it for today but it may be useful for next time. Without in any way prejudging whether the Committee would want to take an action in November, what woul... | 115 |
fomc | 1,999 | One of the things that I'd like to ask of the Ferguson working group is whether it can perhaps expedite its report if possible. You had a long discussion-- | 31 |
fomc | 1,999 | We can do it. | 5 |
fomc | 1,999 | If you can report to the Committee at the beginning of the November meeting, we could fold that into our deliberations. I think it would be quite useful if we could address that particular issue soon because we've got to resolve it. While looking forward to March seemed to be desirable because it would give us a lot of... | 96 |
fomc | 1,999 | I think we can probably report by the next meeting. | 11 |
fomc | 1,999 | Mr. Chairman, given President McDonough's earlier comments and my own sense of this, is it necessary to spend so much time on the labor markets in this press release? | 36 |
fomc | 1,999 | Strangely enough, as a consequence of President McDonough's remarks, I put in additional words here to emphasize that the key question is inflation and its potential for undermining the impressive performance of the economy. | 43 |
fomc | 1,999 | Right. But could we take out the labor market reference? | 12 |
fomc | 1,999 | We ought to be careful. There is a sense of causality here; this is what we're worried about. I don't see any reason to hide that. | 31 |
fomc | 1,999 | Well, if we're going to do that, there are a lot of other things I'd like to list. | 21 |
fomc | 1,999 | I had the same reaction. It seems awfully limiting to hang all of our hats on one item. | 21 |
fomc | 1,999 | The point here, it seems to me, is that the more serious problem is in the realization of above-trend growth in the form of high utilization rates. Do you want to mention what brought about the high utilization rates? This captures it pretty well. | 51 |
fomc | 1,999 | I'm not convinced. | 4 |
fomc | 1,999 | One more comment. People continue to pound me with the question: What is it that you're looking at? The way this is worded, it essentially tells people to watch that one statistic and that one part of the economy, and whether that behaves or misbehaves will guide our actions. I think it's more complicated than that. I ... | 90 |
fomc | 1,999 | Well, what we can do is to say that we need to be especially alert in the months ahead to potential cost increases that could lead to inflation pressures. SEVERAL. I like that. | 39 |
fomc | 1,999 | I disagree with that. Take a situation where we have cost increases and a 0.2 or 0.3 percentage point decline in the unemployment rate next time. I know where I'm going to be. If everybody else isn't there, that's fine. Are preemptive responses by us to changes in the balance of supply and demand appropriate even befor... | 89 |
fomc | 1,999 | But if we say "potential" for cost increases, that gets to your point, I think. | 20 |
fomc | 1,999 | That's fine. | 3 |
fomc | 1,999 | I don't want to vote next time for a tightening of monetary policy because the unemployment rate went down. | 20 |
fomc | 1,999 | Neither do I. | 4 |
fomc | 1,999 | You don't have to! [Laughter] | 9 |
fomc | 1,999 | My colleagues won't want to either. | 7 |
fomc | 1,999 | It's hard to re-edit a statement 55 minutes before press time, but I think a good way out of this is to drop the word "labor" in front of costs. Labor costs are the biggest part of costs, but I don't think we need to single it out. | 56 |
fomc | 1,999 | Why don't we do this: "In these circumstances, the Federal Open Market Committee will need to be especially alert in the months ahead to the potential for cost increases significantly in excess of productivity in a manner that could contribute to inflation pressures and undermine the impressive performance of the econo... | 55 |
fomc | 1,999 | That's fine. | 3 |
fomc | 1,999 | For Larry Meyer's peace of mind, we do discuss above the decrease in the pool of available workers. | 21 |
fomc | 1,999 | I'm happy! | 3 |
fomc | 1,999 | Mr. Chairman, it seems to me that the most low-key way of doing this would simply be to take the first paragraph plus the last paragraph of the draft press release without the first three words. That would be a simple statement about what was done--period. | 53 |
fomc | 1,999 | That says what we did but not why we did it. It goes against the notion that an announcement is supposed to give the rationale for what we're doing. | 31 |
fomc | 1,999 | And it would be a departure from what we've done for the last few meetings. SEVERAL. That's right. | 23 |
fomc | 1,999 | I'm okay with the latest changes. | 7 |
fomc | 1,999 | Adjust it as the Chairman said and declare victory! | 10 |
fomc | 1,999 | Let's quickly adjourn! [Laughter] | 9 |
fomc | 1,999 | For everybody's benefit, I am not of the opinion that writing a press release by committee is the most productive way of doing it, but this is a crucial one. Let me just reread it to be sure that everyone feels comfortable. "The Federal Open Market Committee decided today to leave its target for the federal funds rate ... | 197 |
fomc | 1,999 | That's fine! | 3 |
fomc | 1,999 | Yes, sir. | 4 |
fomc | 1,999 | Why don't we just toss these copies in the middle of the table and get fresh ones? | 18 |
fomc | 1,999 | You read "cost increases significantly" rather than "costs to increase"? | 15 |
fomc | 1,999 | Yes, he took out "costs to increase." | 11 |
fomc | 1,999 | "The potential for cost increases." Plural. | 9 |
fomc | 1,999 | Then "in a manner" doesn't work. | 9 |
fomc | 1,999 | You want to take out the reference to productivity? SEVERAL(?). No, no. | 19 |
fomc | 1,999 | Fix it up, Don! | 6 |
fomc | 1,999 | Okay, fine. Sold! Our next meeting is November 16th. | 15 |
fomc | 1,999 | One reminder, Mr. Chairman. The Committee in its mail-in ballot, voted-including the nonvoting Presidents the vote was 10 to 3, I think--to change the order of the lead-in paragraph in the directive so that the inflation sentence is first. | 55 |
fomc | 1,999 | Yes, I forgot to mention that. The very substantial majority agreed with President Poole on moving the sentence. Are you all familiar with what I'm referring to? The only question on the table is not whether we want to do it but if we should do it now or as part of the Ferguson report. I would prefer to wait. | 67 |
fomc | 1,999 | I would prefer to wait, too. | 8 |
fomc | 1,999 | I do, too. | 5 |
fomc | 1,999 | I think we should adjust all those things at once. SEVERAL. Let's do it all at one time. | 23 |
fomc | 1,999 | Let's wait and do it then. | 7 |
fomc | 1,999 | So we'll go with the old one? | 8 |
fomc | 1,999 | Yes. | 2 |
fomc | 1,999 | Okay, we're done! Let's go to lunch. | 10 |
fomc | 1,999 | Would somebody like to move the minutes for the October 5th meeting? | 15 |
fomc | 1,999 | So move. | 3 |
fomc | 1,999 | Without objection. Peter Fisher. | 6 |
fomc | 1,999 | Thank you, Mr. Chairman. I will be referring to the usual set of charts and some additional materials that should be on the table in front of you. 1/ As usual, the top chart in the package shows the current 3-month deposit rates implied by traded forward rate agreements. Looking at the top panel of the first chart, you... | 3,133 |
fomc | 1,999 | Would you give us a hypothetical scenario of what would happen if a very substantial number of these options were exercised on a single day, triggered obviously by some bank? How would you arrange to meet that? What would you do? | 45 |
fomc | 1,999 | They would give us notice of exercise. We would then do RPs with them through the tri-party vehicle. Anyone who exercised an option would have to deliver collateral to the custody banks. And we would then be putting out the funds to them through the custody banks. | 53 |
fomc | 1,999 | And the amounts we are likely to be dealing with are well within your capacity, as best you can judge? | 22 |
fomc | 1,999 | Yes. On the reserve adding side, we have looked at this to make sure we have the capacity to do it. We are still reviewing it but we think we can handle the exercise of the options with no problems. The question is going to be how many matched sales we can do if we want to drain all the reserves back out again. We are ... | 296 |
fomc | 1,999 | I assume that in the turmoil of that sort of market the issue of draining the reserves is not all that immediately urgent. | 24 |
fomc | 1,999 | Absolutely. That is just what I meant by my remarks that our focus will really be on the impact on the cumulative average of excess reserves in the period. As to whether we will actually drain them all out that one day, I doubt it. But we will try to if what is involved is the sort of exogenous shock that you are imagi... | 255 |
fomc | 1,999 | Other questions for Peter? | 5 |
fomc | 1,999 | Just continuing this line of conversation: If a lot of funds go into the market because of the exercise of the options, it drives the funds rate down, as you said. But then I assume that reduces the probability of any further options being exercised later on. So in a sense it is a one-time hit. | 63 |
fomc | 1,999 | That is a likely scenario. | 6 |
fomc | 1,999 | To make sure that my understanding is correct, I had a question about currency. My understanding is that currency outside the banking system is growing at a very normal rate. We do not see any particular increase in the hand-to-hand circulation as yet. Is that your sense? | 54 |
fomc | 1,999 | Yes. | 2 |
fomc | 1,999 | Currency in circulation includes the currency in bank vaults? | 11 |
fomc | 1,999 | It is the vault cash that clearly has exhibited an extraordinary buildup. As for the rest, we think of it as a slightly stronger than usual seasonal impact but still in the range of the normal seasonal increase. | 41 |
fomc | 1,999 | But not much more. | 5 |
fomc | 1,999 | Money stock currency has been growing at 9, 10, 11 percent. | 17 |
fomc | 1,999 | As it has been earlier? | 6 |
fomc | 1,999 | It is in line with the rate at which it has been growing all year and it is comparable to the rate of growth last year. So there does not seem to be much, if anything, going on there. | 43 |
fomc | 1,999 | Other questions for Peter? If not, we need a motion to approve the domestic transactions. | 18 |
fomc | 1,999 | Move approval of the domestic operations, Mr. Chairman. | 11 |
fomc | 1,999 | Without objection, they are approved. Let's move on to Mike Prell. | 15 |
fomc | 1,999 | Mr. Chairman, Karen Johnson is going to lead off our remarks, but let me just mention to the Committee that we released industrial production data this morning--I trust a few minutes ago. We failed to put a copy of the release in front of you, so let me just tell you about it. There were some small net revisions to the... | 168 |
fomc | 1,999 | I just looked and the tape is delayed. | 9 |
fomc | 1,999 | I'm not sure whether that's good news or not. | 10 |
fomc | 1,999 | The reaction is delayed? | 5 |
fomc | 1,999 | This gadget is very slow. [Laughter] Let's turn now to Karen Johnson. | 17 |
fomc | 1,999 | The news about the global economy that we have received over the intermeeting period has generally been quite favorable. The signs of strengthening activity, particularly in Asia, that we saw earlier in the year continue to be confirmed, and positive developments in real output growth now appear to be widespread across... | 869 |
fomc | 1,999 | I think it's pretty clear that, even gauged with our re-calibrated GDP thermometer, the economy has continued to run hot in recent months. The bigger issue right now would seem to be whether its temperature has reached the inflationary flash point. The recent indications have been mixed on that score, but as you know, ... | 1,839 |
fomc | 1,999 | Questions? | 2 |
fomc | 1,999 | Mike, you mentioned oil prices spiking. When I was reading the Greenbook, I was struck by the fact that in the very week in which oil prices were spiking, you were writing down a forecast that has the price going back down by $5 a barrel, 25 percent or so. Oil prices are among the many things that I have absolutely no ... | 171 |
fomc | 1,999 | That is a good question and one to which I do not have a precise answer. We do not anticipate a plummeting in oil prices; we have a gradual decline over the two years. The level clearly has moved up since we established our assumption; oil prices rose after the Greenbook was published. There is still a downward tilt in... | 145 |
fomc | 1,999 | President Jordan, based on our model, $5 a barrel more on oil prices over the forecast horizon would add roughly 1/4 percentage point to consumer price inflation in the next two years. | 39 |
fomc | 1,999 | Other questions? | 3 |
fomc | 1,999 | Karen, you made the point that economic prospects in the United States are certainly affected by the improved situation in foreign countries. I wonder if you would comment briefly about how your views have changed on Japan. It seems to me that the situation there still looks quite troubling in the sense that the Greenb... | 132 |
fomc | 1,999 | I think we have done two things. We have recognized the fact that we were wrong about the second half of this year. In fact, everybody was wrong; even the Japanese are continuously surprised by the strength in the numbers they are producing. Secondly, we have widened enormously--although it is obviously not written dow... | 648 |
fomc | 1,999 | Thank you. | 3 |
fomc | 1,999 | President Minehan. | 4 |
fomc | 1,999 | Mike, I was interested in both the Greenbook discussion and your own comments about your reevaluation of the degree of structural versus cyclical change in productivity. It certainly has an implication for the potential rate of growth of GDP. I am wondering whether the decrease that we have seen in the unemployment rat... | 106 |
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