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fomc | 2,000 | President Minehan. | 4 |
fomc | 2,000 | I am also in agreement with your recommendation, Mr. Chairman. I think we should wait to see more data on how the economy is shaping up--slowing perhaps--and how productivity trends seem to be developing in the latter part of the year. I, too, think that the balance of risks statement is vitally important. In my view w... | 191 |
fomc | 2,000 | President Moskow. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. I agree with both parts of your recommendation. I think this is a time to pause and take stock. We have seen slowdowns before that were just temporary and the expansion picked up again quite rapidly. And there is the question of whether a slowing in growth that is more sustainable would be enou... | 170 |
fomc | 2,000 | Governor Kelley. | 3 |
fomc | 2,000 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 2,000 | President Jordan. | 3 |
fomc | 2,000 | Thank you. I agree that leaving the funds rate unchanged at this point is the right thing to do. I am also sensitive to the communications issues involved; it would not be desirable to communicate the expectation that we are not going to raise the funds rate in the foreseeable future or to imply that the next change mi... | 287 |
fomc | 2,000 | Governor Ferguson. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. I support both parts of your recommendation. I feel a bit drawn into the discussion about the communication of the balance of risks, having spent nine months working with a number of you in trying to sort this out. I probably shouldn't act on that feeling, but I will. First, I certainly commend... | 408 |
fomc | 2,000 | President McTeer. | 5 |
fomc | 2,000 | I support your recommendation. | 5 |
fomc | 2,000 | Would the Secretary read the appropriate language for the directive and the statement that the balance of risks is toward inflation? | 22 |
fomc | 2,000 | I'll be reading the wording from page 11 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 co... | 130 |
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 | Lynn Fox, would you hand out the version of the press release that hopefully captures the substance of the Committee's discussion? [Pause] Is this statement satisfactory to all concerned? | 36 |
fomc | 2,000 | Amen! | 2 |
fomc | 2,000 | Could I just raise one point? I think the statement is fine. I don't want to talk about that. My point is that increasingly on TV programs we are seeing comparisons of what we said at the last meeting and what we are saying today. I wonder if it's possible, since some of us don't remember exactly what the press stateme... | 87 |
fomc | 2,000 | Obviously we can give you the whole statement, but what we can do, if you prefer, is to give you the operative paragraphs. There are only really two operative paragraphs in this. SEVERAL. Yes. | 43 |
fomc | 2,000 | The rest is boilerplate. We could do that readily so that you would be able to compare them fairly quickly. | 23 |
fomc | 2,000 | I don't know if anyone else feels this way, but if market observers are going to start looking at exactly how we change a comma from last time, I guess I want to know about it. | 39 |
fomc | 2,000 | I will say that when we draft this, we do it with precisely that in mind. But we may not do it to your satisfaction. [Laughter] It may not be a bad idea to have the comparison in front of us. | 48 |
fomc | 2,000 | I may just not remember. | 6 |
fomc | 2,000 | Nobody remembers these things! In any event Lynn, let's do that next time. The next meeting will be on October 3rd and we will now adjourn for lunch. | 35 |
fomc | 2,000 | Good morning, everyone. We begin with Peter Fisher. | 11 |
fomc | 2,000 | Thank you Mr. Chairman. I will be referring to the package of charts with a peach cover.1 On the first page, as usual, is a chart depicting the forward rates. You will note on the far right of each of the three panels that the recent spike in the current 3-month LIBOR rates, the black line, occurred as their maturities... | 315 |
fomc | 2,000 | Someone will think of a phrase to describe it, like "money speaks louder than words." | 18 |
fomc | 2,000 | Yes, that comes to mind. I think your former colleague, Wayne Angell, well summarized this curious state of affairs, at least to my way of thinking. When recently asked what the Committee's next move would be, he responded that it would occur in the year 2003. [Laughter] Turning to the middle panel, as you can see, the... | 1,899 |
fomc | 2,000 | How much money did the American taxpayer lose by our buying 750 million euros at a higher price than we would have had there not been front-running? | 30 |
fomc | 2,000 | I haven't made that calculation, but I'm sure we could do it in just a few minutes; it could be done off of the rates I have provided here. | 32 |
fomc | 2,000 | It's at least a couple of percent. | 8 |
fomc | 2,000 | Yes, it's a couple of percent. | 8 |
fomc | 2,000 | It's about 15 to 30 million dollars. | 10 |
fomc | 2,000 | Dino gave you the answer: It's about 15 to 30 million dollars. | 17 |
fomc | 2,000 | We should complain and ask for restitution! My second question relates to the exhibit on swap rates and other yields. You indicated with regard to the rather significant closing of the spreads in 30-year swaps versus Treasuries that the calendar was a factor. But if the private calendar were an element in that, we woul... | 234 |
fomc | 2,000 | I don't disagree with the way you've described it, Mr. Chairman. But it's a very small data sample of only a few weeks. And I think in the microcosm of a couple of weeks, the heavy pace of private corporate offerings helped to move those rates up to their peak. A number of investors looked at the pickup in yield from a... | 147 |
fomc | 2,000 | I'm just raising the point that one certainly can explain the firming of a 30-year swap rate in those terms. But the presumption that the fairly significant decline in the spreads is attributable to anything other than the potential long-term supply of 30-year Treasuries I find somewhat less convincing. Am I wrong in t... | 66 |
fomc | 2,000 | I would agree with you on where to put the most weight. But I would want you not to put zero weight on this different issue--and maybe I should have been more explicit about it--that there will be a process of investors coming out of the long end of the Treasury market at lower and lower yields. Even if the supply of T... | 124 |
fomc | 2,000 | No, I had no intention of doing that. I never put zero weight on anything! [Laughter] | 22 |
fomc | 2,000 | Or 100 percent! | 5 |
fomc | 2,000 | Or 100. Further questions for Peter? President Parry. | 13 |
fomc | 2,000 | Peter, my recollection of previous interventions--let's say going back 10 or 12 years--is that we would be approached by the Treasury which, of course, was receiving a lot of pressure from another country, and we would act at the request of the Treasury. It sounds as if the dynamics were a little different this time be... | 94 |
fomc | 2,000 | I don't think it was qualitatively different from operations of the early 1990s in the sense that there usually have been two channels of communication with the United States. In those days, it was between the Bundesbank and both the Federal Reserve and the Treasury. Those two channels operate concurrently. The Treasur... | 73 |
fomc | 2,000 | And that was the case this time? | 8 |
fomc | 2,000 | That was the case this time. | 7 |
fomc | 2,000 | That wasn't clear to me. Thank you. | 9 |
fomc | 2,000 | I'm sorry, I meant that to be explicit. There is a novel awkwardness with the ECB in that, as Secretary Summers has said, there is no one to answer his phone call--there is no one place where he can call his counterpart--whereas there is someone to answer our phone call. So there was some awkwardness. And there's still... | 108 |
fomc | 2,000 | You know the Treasury, to its credit, feels uncomfortable dealing directly with another central bank except through us. And I think in that regard-- | 28 |
fomc | 2,000 | So there's an institutional change that has really produced the different approach. | 13 |
fomc | 2,000 | It's largely that. | 4 |
fomc | 2,000 | It's an institutional difference. | 5 |
fomc | 2,000 | Right. | 2 |
fomc | 2,000 | The Federal Reserve represents both itself and the Treasury of the United States whereas the ECB does not represent the treasuries of its member countries but is just the central bank. | 34 |
fomc | 2,000 | Good. I think that explains it. | 8 |
fomc | 2,000 | I'm sorry I wasn't clear about that. | 8 |
fomc | 2,000 | Mr. Chairman, I'd like to take a couple of minutes to talk about the intervention issue because I think it's a very important issue for us. If I were currently a voting member of the FOMC, I would offer an amendment to the motion to ratify the recent transaction in euros for System account. My purpose would not in any ... | 1,186 |
fomc | 2,000 | Let me comment. First of all, you left out in your analysis of sterilized intervention the most extraordinary set of experiments proving it doesn't work, which is the Japanese experience employing $20 billion against the dollar with zero effect. There is no evidence, nor does anybody here believe that there is any evid... | 99 |
fomc | 2,000 | June of 1998. | 6 |
fomc | 2,000 | Between June of 1998 and today--or I should say last week--we probably had 20 or so different requests, at various levels, for intervention. We turned them all down. And indeed, in this latest case we were not happy with the notion of intervening. What occurred essentially was that the Treasury, feeling under very cons... | 680 |
fomc | 2,000 | May I comment? | 4 |
fomc | 2,000 | Sure. | 2 |
fomc | 2,000 | I've been at the Reserve Federal for 8-1/2 years, having had Peter's job and now the Vice Chairmanship of the Committee, and I think economic theory is wonderful and is extremely helpful in guiding us in our judgments. But in my time here, I have found that very occasionally one reaches the point, as the Chairman has j... | 552 |
fomc | 2,000 | Mr. Chairman, if I may. What I think we need is a standing position that we do not share 50/50 with the Treasury in any intervention unless there is an explicit decision to do so. It is very awkward to say no when we have a custom of sharing 50/50. I understand that. It is that custom that I would like to see us change... | 97 |
fomc | 2,000 | Frankly, I seriously question whether it is worth fundamentally altering our relationship with the Treasury over what is effectively a very minor change. Remember that our money is really their money. If there is such a thing as a shareholder of the Federal Reserve, it is the U.S. Treasury. To the extent that we profit... | 217 |
fomc | 2,000 | I have a couple of questions, but first I want to say that I think we have a good chance of making a profit on this one. Going back to the Chairman's earlier question about how much did the taxpayers lose by our buying euros at the price we bought them, I assume that was in contrast to the price at which we could have ... | 82 |
fomc | 2,000 | If I understand your question, it's the price we get when we enter the market. We call our counterparties and they quote a price at which we may buy. The Chairman's question had to do with the set of numbers across the bottom of page 4 in my material. Had the rate not traded up 2 cents, how much would-- | 70 |
fomc | 2,000 | The presumption being there was front-running. | 9 |
fomc | 2,000 | The operation was front-runned or leaked--or at least there are all sorts of questions. | 19 |
fomc | 2,000 | We are not just talking about the market going up. We're saying that a decision was made on Thursday--at what time? | 25 |
fomc | 2,000 | I'm an innocent, so you may have to explain this in more detail to me. You are saying that ? | 22 |
fomc | 2,000 | I want to be clear that I don't think | 9 |
fomc | 2,000 | Little countries on the periphery of the exchange rate system of our world economy can have active reserve managers. I don't think it works for a major currency or even a component of it in an NCB to have an aggressive reserve management program. For your benefit, we at the Federal Reserve--as I'm sure you pretty much ... | 259 |
fomc | 2,000 | Another question is on the definition of sterilization. How do we know this intervention is sterilized on their part? I take it the definition of unsterilized intervention in this case would be that fewer euros and more dollars are created in the near future than would otherwise have been created. On our side, we are g... | 107 |
fomc | 2,000 | Well, we don't know what they will decide at their Council meeting later this week with respect to their interest rate. But just as we target an interest rate, they target an interest rate. So I've taken it for granted, and I think the market has too, that they will be managing their repo operations just as we would. A... | 80 |
fomc | 2,000 | It is conceivable that their target for the interest rate will be different than it would have been had they not intervened, isn't it? | 27 |
fomc | 2,000 | That will only come out of their Council meeting, just as it would only come from this Committee. | 20 |
fomc | 2,000 | I understand that, but-- | 6 |
fomc | 2,000 | It's possible. | 3 |
fomc | 2,000 | I'm saying that we're all talking as if this has been sterilized. | 14 |
fomc | 2,000 | I think you're raising a slightly different issue. The degree of open market operations required to keep an interest rate constant, and hence the creation of, in our case dollars and in their case euros, can vary. So it is not the same thing as saying that if the interest rate target is unchanged, the result is full st... | 198 |
fomc | 2,000 | Mr. Chairman, for all of my strident opposition to intervention over the years, I recognize that in particular cases such as this one tough calls have to be made. And we are in a difficult situation. But I certainly want to support the thrust of Bill Poole's statement. For me the problem has always been the damage that... | 185 |
fomc | 2,000 | I think we are doing that. We are doing it, hopefully, by education. I've had innumerable conversations with our counterparts in the central banks of Japan and Europe arguing the inefficacy of this kind of operation. A lot of us have. I know Bill McDonough has done that and so have a lot of others. And it has worked in... | 287 |
fomc | 2,000 | May I just make a quick follow-up comment? To me it's not the question of inefficacy or whether sterilized intervention does or does not have an impact of some sort over the short run. It's a matter of our credibility and what it does to that. | 53 |
fomc | 2,000 | Supposing intervention works and we use it. What would that do to our credibility? | 17 |
fomc | 2,000 | Well, I think it raises questions about what our ultimate fundamental objective is. | 15 |
fomc | 2,000 | Absolutely, but it has nothing to do with our credibility. It may say that our policy positions are conceptually inaccurate or inappropriate. | 26 |
fomc | 2,000 | I mean the credibility of a long-run strategy aimed fundamentally at longer-term price stability. | 17 |
fomc | 2,000 | But supposing people could argue that sterilized intervention actually enhanced an anti-inflationary posture? If that were factually so, we would affect our credibility by not intervening. It's a factual issue; I don't think it's a credibility issue. | 50 |
fomc | 2,000 | Let me return more to President Poole's argument, and perhaps make a less subtle comment than the Chairman just made. If you really want us out marketing the view that intervention is a terrible idea, we can do it much more effectively with our present relationship with the Treasury than we can without it. The amount o... | 159 |
fomc | 2,000 | Any further comments? If not, would somebody like to move to ratify the foreign exchange activities of the Desk? | 23 |
fomc | 2,000 | I'll move to ratify the foreign exchange activities of the Desk. | 13 |
fomc | 2,000 | Is there a second? | 5 |
fomc | 2,000 | Second. | 2 |
fomc | 2,000 | Objections? Thank you. They are approved. Would somebody like to move to ratify the domestic operations? | 22 |
fomc | 2,000 | So move. | 3 |
fomc | 2,000 | Without objection, they are approved. Before we move on to the economic discussion, let me just say that this issue of intervention will reemerge periodically and I think this was a very useful discussion. I believe the notion that you raised is an important one and was well worth discussing. But if any of you have sig... | 106 |
fomc | 2,000 | On the whole, the data we have received over the past six weeks have not materially changed our view that the economy is easing onto a path of below-trend growth. Indeed, we have made relatively few changes to either our trajectory for overall real GDP or to the underlying components of demand. With respect to inflatio... | 2,163 |
fomc | 2,000 | As Dave noted, the extension of our forecast through 2002 provides an opportunity to consider some longer-term issues and risks. In particular, the longer forecast horizon allows the implications of our projections for foreign activity, the exchange value of the dollar, and, importantly, global oil prices to be clearly... | 1,231 |
fomc | 2,000 | Are there any useful data supporting the general notion of a modest slowdown in the rate of flow of capital from Europe to the United States? What do we know about that? I ask because I keep seeing a number mentioned which I don't quite see in the balance of payments data. | 55 |
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