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fomc | 2,000 | That same communication probably would not be modified much if we went 50 basis points? | 17 |
fomc | 2,000 | If you went 50 basis points and had an unbalanced risks sentence, I think that would communicate a greater sense of concern on the Committee's part than the market now perceives. | 37 |
fomc | 2,000 | But not a greater sense of concern than is in the analytical work that has been presented to us. | 20 |
fomc | 2,000 | I agree. And what I think that would tend to communicate is that you are putting weight on an estimate that the economy is operating well beyond potential and that the unemployment rate needs to rise appreciably to stem inflation. The question is whether you want to do that now or wait for some evidence that that in fa... | 93 |
fomc | 2,000 | Thank you. | 3 |
fomc | 2,000 | Don, how comfortable do you feel about all of these simulations when the econometric structure that they are being simulated from has not provided a good record for judging the outcomes with respect to inflation, costs, and the like? | 44 |
fomc | 2,000 | There is a lot of uncertainty about the supply side of the economy and I would try to communicate that. We ran a number of other simulations and presented them in the Bluebook to underscore that point. But I think the staff has been catching up with this very quickly; we might even be ahead on productivity but certainl... | 239 |
fomc | 2,000 | In the simulations, what are you doing to the statistical discrepancy? | 13 |
fomc | 2,000 | I don't know. That's an income side thing and the simulations, I believe, are basically done on the product side. | 24 |
fomc | 2,000 | As you know, the huge opening up of the statistical discrepancy is creating different coefficients than one would get using the product side. And I would submit to you that the stability of a number of the outcomes you are getting in these simulations relative to the forecast of this discrepancy is much larger than I t... | 483 |
fomc | 2,000 | Mr. Chairman, may I make a couple of comments? One is that I would encourage people to look at most of these simulations in a broad sense, simply in a directional sense. I think the message will carry even if one adjusts some of these coefficients significantly. On the question of the statistical discrepancy, many of t... | 86 |
fomc | 2,000 | I disagree with that. That is not factually correct. | 12 |
fomc | 2,000 | If it is a matter of mismeasurement of output growth over the recent period, then that is something we would need to recalibrate--both in terms of our estimate of potential as well as actual growth. | 41 |
fomc | 2,000 | It changes the probability, in the sense of the security one has in what the underlying rates of trend productivity are. | 23 |
fomc | 2,000 | True. | 2 |
fomc | 2,000 | You are assuming right now that the second derivative, which has been positive for quite a period of time, falls to zero. You have been assuming that for the last 3 or 4 Greenbooks and it has been-- | 45 |
fomc | 2,000 | Actually, in this case we are assuming that the second derivative is positive for the forecast period relative to the recent period and we are making no assumption about it past 2001. | 36 |
fomc | 2,000 | Remember you are forecasting it to fall. | 8 |
fomc | 2,000 | That's a very long-term assumption in the simulation, yes. | 12 |
fomc | 2,000 | I don't want to get into a detailed discussion on this. It's just that I want to make clear that there is sometimes a presumption about the accuracy of the results these models produce, which I don't think conveys the humility required for them. I just want to put that on the table. If we want to have a seminar on this... | 88 |
fomc | 2,000 | I take a backseat to no one in terms of humility about these models, but I just want to close a loop on one other thing so everyone understands what we have done in the projection. This is getting into how the sausage is made. In fact, in balancing the income and product sides of our forecast, we actually do have a con... | 128 |
fomc | 2,000 | That is the point. Suppose it is actually going in the other direction? Look, I am not arguing. I do not disagree with the general policy focus that is coming out of the Greenbook. I happen to think that, this year, we are going to have to move the funds rate quite significantly higher. And the number I would put in th... | 159 |
fomc | 2,000 | Thank you. I, too, have a lot of reservations about the national income accounts sets of information that we use to think about an increasingly globalized economy. It is certainly not what we would construct if we were starting from scratch today, given the way we see the world going. Nevertheless, it's what we have, s... | 577 |
fomc | 2,000 | I think that is a fair message, and it is illustrated in Chart 4 to a certain extent. I'm not sure about the gradualism part, but it certainly relates to the policy success that you can have. Chart 4 looks at that realized-inflation rule against one that is the same as the price-stability rule. Now, that price-stabilit... | 389 |
fomc | 2,000 | President Broaddus. | 5 |
fomc | 2,000 | Don, I suppose this is half comment and half question, and it is premised on the idea that these simulations are useful. I think they can be useful, especially in making comparisons between particular simulations. I'm on Chart 3 and I just want to compare the so-called baseline scenario and the stable-inflation scenari... | 332 |
fomc | 2,000 | The structure basically assumes credibility. That is, unless the Federal Reserve changes, the structure assumes that if you have a 2 percent target, the public knows you have a 2 percent target. And as long as you are following the policy actions that flow from having that target--so that you are confirming period by p... | 245 |
fomc | 2,000 | That's a good point, especially at the end of the year. | 13 |
fomc | 2,000 | Right. So, there's almost a percentage point of extra restraint by the end of 2001 and that persists for the next year or so. That is a significant amount of extra restraint. | 38 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | As I said yesterday, I liked this exercise. At the same time, I think we all should be very humble. There is actually an added dimension to the humility and it goes to this productivity debate. I had always thought that whatever the rate of productivity, if we had a positive shock--that is, if productivity went up--tha... | 206 |
fomc | 2,000 | You can see from Chart 6 that a positive productivity shock does not tend to lower inflation rates in the short run unless you are targeting the inflation rate very hard. I think one needs to differentiate between very short-run effects and longer-run effects. Let's say in the short run that you have the productivity s... | 171 |
fomc | 2,000 | True. But also if we have forward-looking long-term markets, such as the stock market, it could be that the demand effect gets telescoped up front into higher consumption and investment demand. | 38 |
fomc | 2,000 | That mechanism is in the model. Now, whether it's sufficiently captured in the model is a question. But the effect of the extra earnings on stock prices feeding back on consumption--though you may think all of it has not been captured in the last couple of years--is in the model. | 58 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Don, I have two comments. One, if you're uncertain about whether the growth is the outcome of a supply shift or a demand shift, wouldn't a nominal income rule dominate the Taylor rule or the inflation rule in terms of exercises like this? | 48 |
fomc | 2,000 | If it were a price shock--a change in the price level of the old oil shock variety that we used to study--then a nominal income rule is a way of taking part of that in inflation and part of it in output. In that regard it's much the same as a Taylor rule. There might be a different dynamic path, but I don't think it wo... | 147 |
fomc | 2,000 | My other comment follows from what the Chairman said earlier. It seems to me that it is important to keep in mind that there are standard errors in these exercises and they are significant. I must admit that if I didn't think that was the case, I would have been terrified by these outcomes. Instead, I'm only scared! | 64 |
fomc | 2,000 | Any further questions? If not let me get started. I believe we are entering a period of considerable turbulence in financial markets. Its characteristics are what one would expect, though we may never have experienced them, from being on the upward slope of a general acceleration in technological applications and accel... | 2,857 |
fomc | 2,000 | "Balance of risks." | 5 |
fomc | 2,000 | The balance of risks is toward inflation. Vice Chair. | 11 |
fomc | 2,000 | Mr. Chairman, I fully support your recommendation, but let me make a few comments. The issue clearly is not whether we should do nothing, but whether we should firm 25 basis points or 50 basis points. And I agree that in either case we would have to use the balance of risks language indicating that we are more concerne... | 338 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | Mr. Chairman, I certainly also support your recommendation. We are faced with very powerful, real forces that we want to allow to run to the extent that they can in terms of increasing productivity, employment, and real income without upsetting the inflationary apple cart. I would like to relate your comments this morn... | 408 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Mr. Chairman, I would prefer a 50 basis point increase in the funds rate and also a public statement that we are focusing on heightened inflation risk in the future. My concern is that the time period between this meeting and the next meeting on March 21st is quite long. I might suggest something that would make me mor... | 204 |
fomc | 2,000 | The option of a telephone conference is always on the table. It always has been. It's just that we have not needed to employ it for a while. But it is obviously there. | 37 |
fomc | 2,000 | Well, I think there might be a case for it this time. | 14 |
fomc | 2,000 | The markets will tell us. President Stern. | 9 |
fomc | 2,000 | Thank you, Mr. Chairman. I support your recommendation in its entirety. It seems to me, given the kind of technology or productivity shock that we have had, that real interest rates need to rise. To some extent, that has occurred. My judgment is that they need to go up more. I do not see any way we can accomplish that ... | 189 |
fomc | 2,000 | President Hoenig. | 4 |
fomc | 2,000 | Mr. Chairman, I support your proposal completely. I believe the increased risk of inflation is there, so I think we ought to say it. Also, I am very much in favor of 25 basis points for several reasons. First, while the models show direction, I agree that they don't show it with precision, so I think we should proceed ... | 158 |
fomc | 2,000 | Governor Meyer. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. I support your recommendation for a 25 basis point increase in the funds rate and what I will continue to call an asymmetric posture. I also agree with you that we are likely to have to implement a series of tightenings this year; it is likely to be appropriate to make a move at each meeting fo... | 1,061 |
fomc | 2,000 | Governor Ferguson. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. I agree with both halves of your recommendation. I think we should reinforce markets when they are right and I think they are right in their expectations. Secondly I, like others, am moved by the uncertainties that we have talked about, but I also recognize that inflation does not appear at thi... | 177 |
fomc | 2,000 | President Boehne. | 5 |
fomc | 2,000 | I agree with your recommendation of 1/4 point and I think we need to convey the view that we have more tightening ahead of us. My best guess is that there will be a significant amount of tightening over the coming year. There may well be a time in this series of tightening moves where a move of 1/2 point is going to be... | 188 |
fomc | 2,000 | President Broaddus. | 5 |
fomc | 2,000 | Mr. Chairman, I am pretty much where Bob Parry is. This is a tough call but, if I had my druthers, my preference would be to go the full 1/2 point. It would be a very decisive move that would preempt any inflation expectations that might either be building or likely to build in the near-term future. I recognize it woul... | 350 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | First, on the data point: I talked yesterday about the difference in ten-year bonds between the nominal and the real spread. I am no match for you in developing the synthetic yield! | 37 |
fomc | 2,000 | I didn't do it! It was your colleagues down at the other end of the table. | 18 |
fomc | 2,000 | I was using the chart, Exhibit 18, that the staff sends around every Monday. And on that rendering, certainly in the last month there has been a rise in the inflation premium. But Don Kohn did persuade me that I way overstated it yesterday. Nevertheless, it has gone up. The second thing I would like to say is that I te... | 436 |
fomc | 2,000 | President Jordan. | 3 |
fomc | 2,000 | Thank you. When I look out at what the financial markets are tellingly me--or maybe more importantly not tellingly me--I see the Treasury yield curve upward sloping a bit from two years out to five years. Beyond five years it's downward sloping, with corporate bond yields and mortgage rates at 8 percent. I would be har... | 511 |
fomc | 2,000 | The Board of Governors will be meeting later to vote on the discount rate. President Guynn. | 19 |
fomc | 2,000 | Thank you, Mr. Chairman. I came into the meeting with the intention and inclination to argue for a 50 basis point tightening, and I think the staff presentations we heard yesterday and the comments made around the table would certainly support that. I believe there is evidence of mounting inflationary pressures. The pr... | 233 |
fomc | 2,000 | President Moskow. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. There was a table in today's Wall Street Journal. I don't know how many people saw it, but it listed a series of possible Fed actions today, gave the odds on them and the likely market reaction. It had all the different scenarios we've talk about--an increase in the funds rate of 25 or 50 basis... | 381 |
fomc | 2,000 | President Minehan. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. One thing I came into this meeting very determined about was that we should end with an asymmetric directive, whether we went with a 25 or a 50 basis point increase in the funds rate. So I'm glad it appears that we are going to do that. I imagine that most people, if they gave any thought at al... | 340 |
fomc | 2,000 | Governor Kelley. | 3 |
fomc | 2,000 | Mr. Chairman, I support your recommendation for all the reasons that have been expressed. I think it's exactly the right thing to do. But I do want to say that I feel a good deal of identification with the remarks of President Broaddus and others around the table. | 55 |
fomc | 2,000 | President McTeer. | 5 |
fomc | 2,000 | I support both parts of your recommendation. As far as the future is concerned, I hope we will keep looking at the data and make our decisions one step at a time and not get too programmed in advance as to what we are going to do. | 50 |
fomc | 2,000 | I guess we have heard from everybody. | 8 |
fomc | 2,000 | Yes. | 2 |
fomc | 2,000 | It looks as though we have strong support for an increase of 25 basis points and a balance of risks statement toward concerns about inflation. | 27 |
fomc | 2,000 | I'll be reading from page 29 for both the balance of risks sentence and the sentence on the federal funds rate. Only one vote is involved, encompassing both: "To further the Committee's long-run objectives of price stability and sustainable economic growth, the Committee in the immediate future seeks conditions in rese... | 135 |
fomc | 2,000 | Call the roll. | 4 |
fomc | 2,000 | Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus Yes Governor Ferguson Yes Governor Gramlich Yes President Guynn Yes President Jordan Yes Governor Kelley Yes Governor Meyer Yes President Parry Yes | 40 |
fomc | 2,000 | I'd like to adjourn the FOMC meeting for a few minutes temporarily and ask the Board members to join me in my office. Subsequent to that, we have to review the statement that we will be putting out. So, just give us a few minutes. I'm sorry, let's also do coffee! | 62 |
fomc | 2,000 | The Board has voted to approve a 1/4 point increase in the discount rate to a level of 5 percent. The floor is open for comments or suggestions on the draft press release circulated to you. | 42 |
fomc | 2,000 | Perfect! SEVERAL. Perfect! | 8 |
fomc | 2,000 | Absolutely perfect, Mr. Chairman. | 7 |
fomc | 2,000 | Including the run-on sentence? [Laughter] | 10 |
fomc | 2,000 | It couldn't run on any better! | 7 |
fomc | 2,000 | If there are no comments, then this press statement will be released on schedule. Our next meeting is March 21, as President Parry mentioned earlier. It's 8 minutes and 10 seconds to noon. What's the status of lunch? | 48 |
fomc | 2,000 | It should be ready within the next 10 minutes. | 11 |
fomc | 2,000 | Mr. Chairman, in addition to this remarkable economy, this is a remarkable meeting. This Committee has resisted the opportunity to talk endlessly about a press statement. I think we ought to note that! | 39 |
fomc | 2,000 | Why don't we adjourn. | 6 |
fomc | 2,000 | I would just like to mention for the minutes of this meeting the passing of Frank Morris, the former President of the Federal Reserve Bank of Boston and a participant in these Committee meetings for 20 years. He died a week or so ago. He was, to my knowledge, an active contributor to the work of this Committee and of t... | 79 |
fomc | 2,000 | Is it appropriate to put that in the minutes? | 10 |
fomc | 2,000 | Yes. | 2 |
fomc | 2,000 | Frank was a good friend to a large number of us around this table. | 15 |
fomc | 2,000 | Ed Boehne mentioned last night that he was a good friend to everybody who is in the Federal Reserve System, both retired and current employees, in terms of his involvement with the Thrift Plan and his chairmanship of the Investment Committee. | 48 |
fomc | 2,000 | Before we turn to our regular agenda, I want to mention that today is Ed Boehne's last meeting. He has been attending these meetings for many years; in fact, none of us has sat at this table without seeing Ed sitting in his chair. He has been a member of this group longer than any of us. But what is more impressive is ... | 172 |
fomc | 2,000 | Thank you. [Applause] | 8 |
fomc | 2,000 | We need to get that chair reupholstered! | 11 |
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