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fomc | 2,000 | Mr. Chairman, I can support your recommendation. But let me make a quick comment. I have some of the same feelings that Ned Gramlich and others have expressed in that I worry a little that we may get a bit too comfortable with this incremental approach of 1/4 point increases. That may be enough to do the job, but it ma... | 393 |
fomc | 2,000 | Al, I was anticipating your comment--that's all! | 11 |
fomc | 2,000 | "Vengeance is mine saith the Lord!" | 10 |
fomc | 2,000 | I need to read the Bible more. | 8 |
fomc | 2,000 | Governor Kelley. | 3 |
fomc | 2,000 | I agree with your recommendation, Mr. Chairman. | 10 |
fomc | 2,000 | Governor Meyer. | 3 |
fomc | 2,000 | Mr. Chairman, I agree with your recommendation. I think a good case can be made for the kind of gradualist policy that we've been following. However, since we are obviously into confessions today, I should say that I, too, didn't come to this conclusion without some internal debate of my own. I mentioned at the last me... | 343 |
fomc | 2,000 | Governor Ferguson. | 3 |
fomc | 2,000 | I support both halves of your recommendation. And since we are confessing, I will confess that my heart is pure! [Laughter] | 28 |
fomc | 2,000 | You're obviously not a Catholic! [Laughter] | 10 |
fomc | 2,000 | That is also true. I do think a 25 basis point move is appropriate today. As I said earlier, a 50 basis point move may be appropriate later. | 34 |
fomc | 2,000 | You know what happens to those whose hearts are pure? Their strength is as the strength of ten! | 20 |
fomc | 2,000 | He has to turn his collar around the other way! [Laughter] | 15 |
fomc | 2,000 | Mr. Secretary, would you read the appropriate language for 25 basis points and the balance of risks toward inflation? | 23 |
fomc | 2,000 | I'll be reading from page 14 in the Bluebook: "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee in the immediate future seeks conditions in reserve markets consistent wit... | 128 |
fomc | 2,000 | Call the roll please. | 5 |
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 | May I suggest that Lynn Fox distribute a draft press statement, and I ask the members of the Board of Governors to join me in my office as we go into a temporary adjournment of the FOMC. [Recess] | 47 |
fomc | 2,000 | The FOMC is back in session. The Board of Governors just voted unanimously to accept the requests received thus far from almost all of the Reserve Banks to increase the discount rate to 51/2 percent. You have in front of you a draft statement, which essentially replicates the February statement. Does anybody have any c... | 68 |
fomc | 2,000 | I think it's an accurate statement of where the Committee is, Mr. Chairman. SPEAKER(?) I agree with you. | 24 |
fomc | 2,000 | Excellent! | 2 |
fomc | 2,000 | I have one question, Mr. Chairman. The first sentence in the second paragraph makes the statement that conditions and considerations are essentially the same as when the Committee met in February. I suppose if one interprets the word "essentially" quite broadly, that may be true. But the projections in the latest Green... | 118 |
fomc | 2,000 | I grant you that that is your point of view; you've held that view. But as I heard the discussion, I think this probably captures the position of the majority of the members. Frankly, it's a very minor issue and I don't really want us to get into a debate on it. As I read it, it captures the general view of the majorit... | 130 |
fomc | 2,000 | May I collect the drafts? | 6 |
fomc | 2,000 | Finally, to close the meeting, let me reconfirm that the date of the next meeting is May 16th. The meeting is adjourned. We will go to lunch! | 37 |
fomc | 2,000 | Good morning, everyone. The changed structure of the seating around the table today reflects a desire to get a better perspective on the economy! [Laughter] Actually, this type of seating arrangement has worked out very well at our regular Board meetings. But if it doesn't work for the FOMC, we can always go back to th... | 100 |
fomc | 2,000 | I've missed a few. | 5 |
fomc | 2,000 | So, he may in fact be uttering his last official words here today. But like many of our colleagues who have left, his imprint clearly is going to be on us for a good long time. And if we happen to get off track after this meeting, somebody is going to do a regression that I don't think any of us is going to like! In an... | 83 |
fomc | 2,000 | Thank you. | 3 |
fomc | 2,000 | We will have many occasions to say that to you before you leave. There is still a fairly large number of days before your official retirement. As you know, at today's luncheon we're going to bid our official farewell to Ed Boehne. Obviously, Ed is not participating in our meeting today; and Bill Stone is here with us t... | 89 |
fomc | 2,000 | So move. | 3 |
fomc | 2,000 | Peter Fisher, you are on. Where are you? | 11 |
fomc | 2,000 | Over here, Mr. Chairman! [Laughter] There is a package of charts and text in front of you, which on the first page has a summary of my remarks. 1 Let me apologize in advance for the length of my report. I will try to cut to the chase. Also, I should note that all the typos in the written material are my own, as yesterd... | 5,565 |
fomc | 2,000 | On the contrary, I thought that was an exceptionally worthwhile presentation. Indeed, it strikes me that you at least have come to grips with the concerns that I had at the last meeting. What you did not mention is that the on-the-run/off-the-run spreads, which have been a measure of illiquidity in the system, are goin... | 404 |
fomc | 2,000 | Thank you. If I could just note, Mike Prell has wisely counseled me that the number I quoted to you on the Administration's surplus of $226 billion is not for publication. That number is embedded in what the Treasury has in its cash forecast for the rest of the year, and that is not in the public domain. | 68 |
fomc | 2,000 | Questions for Peter? | 4 |
fomc | 2,000 | I think we ought to grow our balance sheet with real estate! [Laughter] | 17 |
fomc | 2,000 | Texas real estate? | 4 |
fomc | 2,000 | Are you recommending anything in particular? | 7 |
fomc | 2,000 | We could build buildings and ease Peter's problem! | 10 |
fomc | 2,000 | On a wholly different issue, let me just quickly ask a question. Baas tend to sell at somewhat lower interest rates than BBBs. BBBs are 10-year maturities and Baas are somewhat longer. Is that the difference? In other words, is it the longer maturity that's creating the spread or is there a real risk difference between... | 80 |
fomc | 2,000 | You got me! | 4 |
fomc | 2,000 | A rare event! [Laughter] | 8 |
fomc | 2,000 | You are kind to say so! | 7 |
fomc | 2,000 | This has nothing to do with this particular meeting, but if you could give me an answer on that later I'd appreciate it. | 25 |
fomc | 2,000 | Yes, we will look into that. Thank you, Mr. Chairman. | 15 |
fomc | 2,000 | President Broaddus. Where is he? [Laughter] | 13 |
fomc | 2,000 | He's to your right! [Laughter] | 9 |
fomc | 2,000 | I wanted to ask a question--or I guess more accurately state an opinion--about the swaps. Is that proposal on the table now? | 28 |
fomc | 2,000 | Yes. | 2 |
fomc | 2,000 | What really worries me is that the continued existence of this facility puts us in a position where we can be drawn into actions that we may not want to be drawn into at some point. I question whether that is desirable. In my view it is not. I'm talking, of course, specifically about Mexico. The situation is very diffe... | 124 |
fomc | 2,000 | I think you are raising a good point. I wouldn't think, with the Mexican election on the horizon, that this is the right time. But I do believe it may well be desirable to put that issue on the table and take it up at a later date. Obviously, we would need to consult with the Treasury Department on this. But at the app... | 168 |
fomc | 2,000 | Thank you. My comment was going to be along that same line, that this absolutely would not be the time to fail to renew the swap arrangement with Mexico. That action could be far too easily misinterpreted. However, a year from now we will have a new Administration in Mexico and maybe a new minister of finance and centr... | 114 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | I have two questions for Peter. First, on page 15 of his handout, what is the difference between the $178 billion and the $88.7 billion? In effect is it a reserve in case the surplus is larger than we think? How do we interpret that gap? | 58 |
fomc | 2,000 | The $178 billion is the product of the sequence of my thinking about how one could cap SOMA temporarily in our primary market behavior and in some way communicate that effectively to the market. The question is how to communicate effectively to the market that we were skewing our demand in the secondary market toward t... | 181 |
fomc | 2,000 | So this really should be interpreted as a measure of how long you can follow the policies you are describing? | 21 |
fomc | 2,000 | Yes, how long we could tread water in this way. | 12 |
fomc | 2,000 | My second question relates to the on-the-run/off-the-run issue. Is there some reason we haven't done that before? It seems like a logical idea. | 31 |
fomc | 2,000 | We do not purchase on-the-run issues in the secondary market. My point has been that if we let our share of the primary market expand, we would be collapsing the market for the on-the-run issues in nominal terms. That's the only point. We have not been purchasing the on-the-runs. However, we have been suppressing our d... | 173 |
fomc | 2,000 | Vice Chair. | 3 |
fomc | 2,000 | Mr. Chairman, I just have a comment. After our March meeting, I was not sure that even Peter would be able to come up with a formula that would satisfy all the instructions he received. I think it is quite extraordinary that he, in fact, has done that. And I believe he should be complimented. | 65 |
fomc | 2,000 | I did! [Laughter] | 7 |
fomc | 2,000 | I just wanted him to know that his boss also compliments him! | 13 |
fomc | 2,000 | Thank you, both! | 5 |
fomc | 2,000 | Any further questions for Peter? If not, would somebody like to move the domestic operations? | 18 |
fomc | 2,000 | So move. | 3 |
fomc | 2,000 | Would somebody like to move the renewal of the reciprocal swap arrangements? | 13 |
fomc | 2,000 | So move. | 3 |
fomc | 2,000 | I want to dissent on that vote. | 8 |
fomc | 2,000 | The Federal Reserve Bank of Richmond dissents. Let's move on to the economic situation. Mike Prell and Vince Reinhart. | 25 |
fomc | 2,000 | Vince will begin. | 5 |
fomc | 2,000 | The data on foreign economic activity that have come in since your March meeting have run high relative to our prior expectations. We have passed through much of this surprise to the level of foreign output in our projection for the first half of 2000 but have not seen as much reason to alter the pace of its subsequent... | 1,171 |
fomc | 2,000 | As you know, two major statistical releases came out this morning: housing starts and the CPI. We've distributed a table summarizing those reports. Total starts were up about 3 percent in April, reflecting a rebound in multifamily units from March's low level. That single-family starts were stable, rather than falling ... | 1,948 |
fomc | 2,000 | Questions for Mike or Vince? | 6 |
fomc | 2,000 | Mike, I'm struck by your last comment that we've perhaps tended to do too much late in the game because we did too little in the early stages. But does doing too little in the early stages justify in anyone's mind doing too much later? | 49 |
fomc | 2,000 | It certainly wouldn't justify it, but one would hope that by getting ahead of the curve, to use the parlance-- | 24 |
fomc | 2,000 | But if we are behind the curve, do we want to overreact in an attempt to correct that? | 21 |
fomc | 2,000 | Presumably you never want to overreact. | 9 |
fomc | 2,000 | Right. I like that answer. | 7 |
fomc | 2,000 | But as one perhaps gets frustrated in not seeing the desired response and as the problem seems to be getting worse because inflation lags the changes in the output gap, there is probably always going to be a risk of overstaying on the tight side. | 49 |
fomc | 2,000 | President Stern. | 3 |
fomc | 2,000 | Mike, I have a question about the simulations. If you carried these out to 2002 or 2003 and beyond--maybe you did or maybe you didn't--what would you get for inflation? I'm particularly interested in the baseline case and its flat funds rate scenario after this year. | 58 |
fomc | 2,000 | We get inflation continuing on up. This is all finely calibrated through our judgmental forecast and then what the model produces, which is this upward trend in inflation. Part of the problem in that scenario is that the funds rate is stable at 7-1/4 percent and thus it begins to decline in real terms. In essence you b... | 244 |
fomc | 2,000 | What I am trying to get a handle on is how much more inflation we ought to anticipate in another year or two in the baseline case and the flat funds rate. I certainly believe you that the tighter policy may produce the kind of reaction you're talking about. But in those other two scenarios-- | 58 |
fomc | 2,000 | Well, I'll confess that we did not extend the flat funds rate scenario to the out years, but I certainly anticipate that it would be a much worse looking picture. The extension of the 7-1/4 percent funds rate in our model extrapolation--and this involves some extrapolation of the baseline forecast to begin with--result... | 85 |
fomc | 2,000 | Three percent? Okay. | 5 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | I have a question about the international accounts, the foreign dollar claims. How do we get a sense of the magnitudes here? I understand the uneasiness about this. But what fraction of Dutch assets, for example, are now claims on the United States? Or how do these fractions compare with some of these models of optimal... | 84 |
fomc | 2,000 | The models of optimal international portfolio diversification would suggest that there is a long way to run because they conclude that there is a significant home bias. That is, households in a domestic country hold far too much of their wealth in their own currency and not enough international assets. So, from that pe... | 102 |
fomc | 2,000 | Shouldn't that depend on expectations regarding exchange rates? With a fixed exchange rate structure, then holdings of international assets gravitate toward the distribution of a country's foreign trade. But if there are currency risks, foreign asset holdings would tend to fall quite short of such a distribution. | 54 |
fomc | 2,000 | Sure. I was talking about an environment in which there was an equality of risk-adjusted returns worldwide. In that case the international portfolio diversification of households would move toward-- | 34 |
fomc | 2,000 | Foreign currency assets? | 4 |
fomc | 2,000 | Right. It would move toward those shares. But the fact is that households hold fewer foreign assets than our models think they should. However, countering that is a long historical property that they don't hold those assets, and we are testing the ranges of reserve shares. Now to answer the factual part of your questio... | 127 |
fomc | 2,000 | President Minehan. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Mike, I was also interested in your comment about "too little, too late" or "too much, too long" from a couple of different perspectives. Your 8 percent funds rate scenario as compared with the baseline case of 7-1/4 percent would seem to provide a range of options. The 7-1/4 percent would give... | 228 |
fomc | 2,000 | First, I would caution against taking any of these numbers as seriously as we seem to be doing here. | 21 |
fomc | 2,000 | Yes. | 2 |
fomc | 2,000 | That's a caveat I would issue about these long-run simulations, let alone the shorter-run forecast. I guess I'd say that as we assess the trends in aggregate demand and take as given certain features of the external environment, we don't see 7-1/4 percent as doing the job of capping inflation. Now, if you were trying t... | 217 |
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