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fomc | 2,000 | Well, that was the rhetorical part of the question. [Laughter] | 15 |
fomc | 2,000 | I thought it might be. | 6 |
fomc | 2,000 | We got to this situation where we hold assets that are claims on foreign taxpayers by way of historical accident in a sense. We somehow got here. And then, especially if Al Broaddus keeps prevailing, we won't intervene, which means that we don't add to that but we also don't reduce it except for exchange translation ef... | 474 |
fomc | 2,000 | There is a history to this, as you know. Clearly, if the general policy of the United States government were never to intervene in the exchange markets, then the optimum amount of foreign exchange reserves would be zero. The trouble with that, because the Treasury has the presumed ultimate authority to determine our in... | 437 |
fomc | 2,000 | I would suggest as we all think about this--and we can't avoid thinking about it because of surpluses as far as the eye can see, so to speak--that we look back to the earlier practice of exchanges of foreign assets with our foreign counterparts. I know it's the Treasury's call, really. But if it were to turn out that c... | 108 |
fomc | 2,000 | We can do that now without reference to any particular federal surplus or deficit. Well, I grant you that if the Treasury were going to do it specifically, it would-- | 34 |
fomc | 2,000 | It would get to the question of the composition of our portfolio, what we have in, say, euro-denominated assets versus something else, because some things might have to happen. Say we wind up only owning claims on German and French taxpayers but not on Japanese--and I think right now why we hold so many claims on the J... | 117 |
fomc | 2,000 | You are talking about Quemoy? [Laughter] | 11 |
fomc | 2,000 | That, too! I'm suggesting that we be open to facilitating--not intervening, I know--in such a case by engaging in an off market transaction that would result in a reduction of our holdings of assets denominated in foreign currencies in exchange for taking their holdings of U.S. government obligations into our portfolio... | 81 |
fomc | 2,000 | I think that issue really ought to be on the agenda for one of our early Treasury lunches with the new administration. We bring it up every once in a while with the hopes that they will rationalize their policy. And we might as well keep trying. Are there any further questions with respect to the euro diversification i... | 93 |
fomc | 2,000 | Move approval of the domestic operations. | 7 |
fomc | 2,000 | Second. | 2 |
fomc | 2,000 | Without objection. Also, in my enthusiasm to welcome our new member, I forgot to ask for a motion to approve the minutes of the previous meeting and I do so now. Would somebody like to move approval? | 42 |
fomc | 2,000 | So move. SEVERAL(?). Move approval. | 11 |
fomc | 2,000 | Without objection. Let's now move on to the staff briefings and the Committee discussion. I call on Dave Stockton and Karen Johnson. | 26 |
fomc | 2,000 | In putting together this forecast, we had to address two central questions: First, is the economy really slowing? And second, how much does it need to slow in order to prevent inflation pressures from building? To jump right to the bottom line, our answer to the first question is, yes. And our answer to the second ques... | 1,915 |
fomc | 2,000 | After the Greenbook was finalized last week, we received trade data for June. The figure for the trade balance surprised us a bit. Both exports and imports grew more rapidly than we or BEA had penciled in for June, with exports showing the larger upward revision. We would now project second-quarter GDP growth at a 5.1 ... | 724 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Karen or Dave, the new Greenbook assumptions for potential growth and your forecast for actual GDP growth are, I believe, way above the market consensus if one looks at the Blue Chip forecasts, for example. What do you think the chances are that the baseline forecast may actually be accompanied by a stronger foreign de... | 119 |
fomc | 2,000 | It certainly is a reason why we thought this was the right time to include that alternative as opposed to some other alternative. Nevertheless, it's not unlike the problem David described with respect to the stock market. Will 4 percent growth in 2001 come as a big surprise to everybody? In that case, a range of asset ... | 245 |
fomc | 2,000 | Just to follow up on that: I indicated in my remarks that we hapless economists are slowly writing up our forecasts for productivity growth. I think the Blue Chip forecasters may be even more hapless than we are. Those forecasts suggest considerably lower potential output growth than we have. That just doesn't seem con... | 66 |
fomc | 2,000 | Well, I'm not saying that their forecast is right. | 11 |
fomc | 2,000 | No, but it doesn't seem entirely consistent with the earnings expectations that one hears in financial markets. | 19 |
fomc | 2,000 | But when they are more convinced about the truth--which is found in the Greenbook, of course--that would probably affect investors' appetite for dollars. | 31 |
fomc | 2,000 | As both Karen and I indicated in our remarks, we certainly upped the risk in that regard. We made the assumption that it has been largely discounted, but we're not totally sure about that. | 39 |
fomc | 2,000 | Thank you. | 3 |
fomc | 2,000 | President Broaddus. | 5 |
fomc | 2,000 | David, you may have touched on this and if you did, I missed it. You have a very weak projection for housing activity in this quarter and also going forward for at least the next couple of quarters. It's important, I think, because that dip in housing activity is a significant element in the slowing of growth that is f... | 110 |
fomc | 2,000 | We think we have taken account of that. It is still the case, obviously, that mortgage rates are up considerably from their lows and that ARM rates also are significantly higher than they have been. This is an area of the forecast where I think we have been somewhat surprised on the down side in terms of the extent of ... | 192 |
fomc | 2,000 | We are hearing a little bit of that anecdotally. | 13 |
fomc | 2,000 | I think there are upside and downside risks there as well. | 12 |
fomc | 2,000 | President Jordan. | 3 |
fomc | 2,000 | Thank you. My question is for Karen on the international side, but it does feed back on the domestic side. I'm still not sure what I ought to be thinking with regard to developments external to the United States and how that feeds back on our economy and, by implication, on our policy choices. There was the suggestion ... | 395 |
fomc | 2,000 | Let me answer the question in two halves. Under the assumption that the same rules apply as have for years, I think in the face of rising inflation pressures--largely, if you will, from spending shifting up in these economies--foreign central banks will bring about some, though perhaps limited, increase in real interes... | 618 |
fomc | 2,000 | I agree with the partial analysis implication of that last comment, but also our export demand would-- | 19 |
fomc | 2,000 | It would benefit, yes. | 6 |
fomc | 2,000 | Certainly. I don't know what those elasticities are, but that goes in the opposite direction. | 19 |
fomc | 2,000 | It does, although on the whole, given that our current account has worsened and yet the dollar has risen, we're inclined to explain that by saying the investment opportunity mechanism has been more important for the United States over the last three years. | 48 |
fomc | 2,000 | Further questions for our colleagues? If not, who would like to start the discussion? President Moskow. | 21 |
fomc | 2,000 | Thank you, Mr. Chairman. When we met in June, one of the key challenges that we faced was assessing whether the moderation in demand we'd seen at that point was real. Now we have tangible evidence in the affirmative. Both the anecdotal reports and the statistical data confirm that demand growth moderated from the first... | 890 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Overall, economic growth in the Twelfth District picked up in recent months, though we see signs of slowing in housing construction. Also, high and volatile electricity prices have led to some disruptions in production. For the four months ended in July, employment in the West grew at an annual... | 762 |
fomc | 2,000 | President Guynn. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. The economy in our Southeast region remains sturdy, but it's clearly expanding less rapidly than earlier in the year. I sense a growing caution and noticeably less exuberance on several fronts. Obviously, the moderation is most evident in housing. That slowing is now even showing up on the west... | 838 |
fomc | 2,000 | President Hoenig. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. The overall economy for the Tenth District remains solid; it hasn't changed a great deal from last time. However, there have been some very slight signs of further slowing since the last meeting. In the interest-sensitive sectors, particularly home building, there is clear evidence of some cool... | 344 |
fomc | 2,000 | President Minehan. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. There are a few more hints of a slowdown in the New England economy since our last meeting. Regional employment growth has slowed recently, especially in construction, in the finance, insurance, and real estate areas, and in transportation and public utilities. Residential construction contract... | 1,370 |
fomc | 2,000 | President Broaddus. | 5 |
fomc | 2,000 | Mr. Chairman, the latest information we have from our District is a bit more mixed than it was at earlier meetings this year. On the one hand, factory output has remained at a very high level in most, though not all, District manufacturing industries. Labor markets are still tight. We have low state unemployment rates ... | 1,331 |
fomc | 2,000 | President Stern. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. Sifting through the recent data and anecdotes on the District economy suggests that it remains quite healthy but that some changes are occurring beneath the surface. First of all, employment gains remain substantial. That is not a change. Labor markets are very tight and there is some continued... | 365 |
fomc | 2,000 | President McTeer. | 5 |
fomc | 2,000 | First, regarding the Greenbook forecast, the Board's staff is appropriately euphoric about productivity. [Laughter] Second, productivity growth is a good thing and recent productivity growth certainly has not produced a wealth effect through the stock market. As for our regional economy, growth in the Eleventh District... | 744 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | Mr. Chairman, the reports around the Eighth District are broadly consistent with those already noted for other parts of the country. I would summarize by saying that the pressure is off but there is no sign that the economy is sinking. One comment on the labor market: My UPS contact indicated that his firm has had no p... | 715 |
fomc | 2,000 | President Jordan. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. Not surprisingly, in many respects recent developments in our District are very similar to those Mike Moskow reported for his District. I won't cover them in detail because many of my remarks would be a repetition of what he already said. The most commented-on development in the District in the... | 1,520 |
fomc | 2,000 | President Santomero. | 5 |
fomc | 2,000 | Thank you, Mr. Chairman. In the Philadelphia District business conditions have been mixed recently, with improvements in some sectors and slowing in others. In many respects District developments are similar to what we have heard around the table this morning but with some interesting differences. The pace of manufactu... | 696 |
fomc | 2,000 | Vice Chair. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. Recent indicators suggest that economic growth in the Second District has slowed since the last report. Price pressures persist but have yet to show up in any broad-based measure of consumer prices. Unemployment rates in the District were mixed in July, rising from 3.4 percent to 3.7 percent in... | 920 |
fomc | 2,000 | Governor Ferguson. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. At our last meeting we decided to wait and see whether the 175 basis points of tightening that we had put in place was having the desired effect on the economy. I believe the incoming data, as others have suggested, are generally supportive of the wisdom of that posture and do suggest some slow... | 1,014 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Usually at these meetings we are appropriately forward-looking, but today I would like to try something different. I want to look back into the past to see if we can learn anything, and in my comments I am going to refer to a table that is being passed around. 2 The great American inflation sta... | 996 |
fomc | 2,000 | Governor Meyer. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. I'm going to focus my remarks this morning entirely on productivity, specifically on the implications for the outlook of the apparent further acceleration in structural productivity growth. If I had a title, I think it would be "In Celebration of Accelerating Productivity." I'm going to use a h... | 1,796 |
fomc | 2,000 | Governor Kelley. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. I apologize that I have no handout, [laughter] but I'll try to make up for it by being brief. The incoming data that we've been reviewing all morning really need no repetition and I would only add that on balance they seem benign and favorable to a truly remarkable degree. It may be a midsummer... | 352 |
fomc | 2,000 | Thank you. Shall we adjourn for coffee, which I think we've all earned? | 17 |
fomc | 2,000 | Mr. Kohn. | 5 |
fomc | 2,000 | Thank you, Mr. Chairman. As many of you have remarked, incoming data since your last meeting have tended to reinforce the sense that the growth rates of final demand and the economy's ability to meet that demand are much more closely aligned and are likely to stay that way, at least for a while. On the demand side, con... | 1,659 |
fomc | 2,000 | Questions for Don? | 4 |
fomc | 2,000 | A couple of questions, if I might. I read in the Bluebook someplace, though I can't find it now--and I thought I heard you say it again in your briefing--a reference to the declines in real rates as reflecting a reduced probability of the Fed tightening and raising the funds rate. So, I look at the data and I say: Okay... | 149 |
fomc | 2,000 | The 3-month rates that went up were 3-month Treasury bill rates. Three-month commercial paper and CD rates went down. And I think the Treasury bill market, with a reduced supply, is subject these days to very idiosyncratic changes. Much of the specific reaction relates to likely or possible changes in supply, as liquid... | 172 |
fomc | 2,000 | Okay. That leads me to another question. Some of your remarks about the markets and what we can read into the markets and maybe learn from them, I interpret as saying that there is increasing credibility in the marketplace attached to our commitment to avoiding a sustained acceleration of inflation. A year or more ago,... | 328 |
fomc | 2,000 | I think the markets are looking at both their assessment of the underlying supply and demand for goods and services and the Fed's reaction. I personally don't sense a sea change in our credibility. I think our credibility has been building gradually for the last 20 years, sometimes faster, sometimes slower. Over repeat... | 343 |
fomc | 2,000 | Further questions for Don? If not, let me get started. I think there is a fairly general consensus that we are observing a marked slowdown in the growth of consumer demand after a very strong performance earlier this year. Motor vehicle sales clearly are down, although the data for August, seasonally adjusted, were lit... | 2,318 |
fomc | 2,000 | Mr. Chairman, I support your recommendation. I want to talk a bit about the balance of risks sentence we have been using in the press statement as opposed to the asymmetry language we previously had in the directive, and how much we have benefited from that change. I think what we mainly have accomplished is to convinc... | 372 |
fomc | 2,000 | President Hoenig. | 4 |
fomc | 2,000 | Mr. Chairman, I support your recommendation. I would say that policy right now is tight and the issue is whether it ought to be tighter. We certainly can wait to see whether that is the case. One comment on the bias: As a suggestion, I wonder if we should not consider taking out the lone reference to tight labor market... | 162 |
fomc | 2,000 | I can't speak for everybody. I think we are moving in that direction but I don't think we are there yet. I believe the labor market still is the overwhelming problem but clearly less so proportionally than it was, certainly at the last meeting. | 49 |
fomc | 2,000 | In my view it is something we ought to consider as we go forward. | 15 |
fomc | 2,000 | I think that is a valid issue to raise at the next meeting. President Poole. | 18 |
fomc | 2,000 | Mr. Chairman, when I went to the airport yesterday morning in Bozeman, Montana to fly back to this meeting I was a little concerned about whether the flights would be running on time. I asked the clerk whether I would be able to get back to Washington for this meeting. I'm sure he did not know who I am but he said: "Te... | 94 |
fomc | 2,000 | President Guynn. | 4 |
fomc | 2,000 | Mr. Chairman, I'm comfortable with and support your recommendation. Absent some big surprise, I think we have the luxury of letting this play out. I would just underscore Bill McDonough's comments about not doing anything to detract from the notion that we are on watch and are prepared to move when we need to. | 65 |
fomc | 2,000 | President Santomero. | 5 |
fomc | 2,000 | I support your proposal not to change the fed funds rate and to retain the statement that the balance of risks is on the side of higher inflation. I think we need more time to see what is happening with the real economy. Nonetheless, the balance of risks appears to remain on the side of higher inflation over the horizo... | 95 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Mr. Chairman, I agree with your recommendation. I think this would be a good time to leave the funds rate unchanged so that we can see how things unfold before considering another tightening action. I also believe it is important to retain the statement adopted in June that the balance of risks continues to be toward h... | 63 |
fomc | 2,000 | Governor Meyer. | 3 |
fomc | 2,000 | Mr. Chairman, I support your recommendation for no change in the funds rate and to maintain the assessment that the risks are still unbalanced toward higher inflation. I just want to give a perspective on the unbalanced risks issue. Whenever we have an acceleration of productivity growth, we have the following choices:... | 290 |
fomc | 2,000 | President Broaddus. | 5 |
fomc | 2,000 | Mr. Chairman, I support your recommendation, especially your recommendation to keep the tilt in place. I think it would be premature to remove it. Also, Tom Hoenig's suggestion resonates with me and I hope we will look at that again in the near future. | 53 |
fomc | 2,000 | President Stern. | 3 |
fomc | 2,000 | I, too, support your recommendation, Mr. Chairman, including the bias toward concerns about heightened inflation going forward. As I indicated earlier, I do think we have some additional time to assess that situation, and given current real interest rates I believe we are not too far from where we need to be even over ... | 66 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | Mr. Chairman, I support both parts of your recommendation. I think Larry Meyer made a useful cautioning remark that given the productivity shock, we are benefiting from a little good luck, if you will, on inflation. It is different from the good luck we had in 1998 but it is good luck. And we should keep that in mind a... | 240 |
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