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fomc
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That's why I don't like being asymmetric!
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Okay. Sorry! [Laughter]
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He is very consistent.
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I know!
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He is very predictable. [Laughter]
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And my final point, speaking of predictability, is that what apparently is expected out there is that we would change the language this time, and then everybody could read into that that we would change policy the next time. And I don't like being predictable. [Laughter] I would like to do the unpredictable thing--what...
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Governor Ferguson.
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Thank you, Mr. Chairman. I support your recommendation for the reason you put forward, which in some sense has tended to be forgotten as we've gone around the table. We are in a period, I believe, of great uncertainty. And I think it's not illegitimate for us to recognize some uncertainty by saying that we tend to thin...
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Governor Meyer.
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Thank you, Mr. Chairman. I support your recommendation. I continue to believe that a period of below-trend growth is constructive, but I'm mindful of the downside risks we face today. I think one reason for being cautious about moving immediately is that the markets already anticipate a move early next year and a cumul...
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President McTeer.
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Predictably, let me say that a quarter point is not much, and I really think we need to get started earlier rather than later. I agree with most of what Bill Poole said about the current situation. One thing he said was that we are not going to learn much in early January except the employment-unemployment numbers. We ...
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I think a majority is in favor of no change in rates and the balance of risks toward the down side. Read the appropriate language.
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The wording is on page 14 of 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 with m...
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Call the roll.
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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
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Let me indicate that the next meeting is going to be a rather long one because our agenda is quite lengthy. We will be meeting at 9 a.m. on both Tuesday and Wednesday, which is longer than usual, so I'll give you all a heads up. Let's go to lunch.
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The announcement?
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Oh, I'm sorry. That tells you how hungry I am! [Laughter]
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Could I suggest a change in one word?
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Sure.
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The seventh line begins with "financial markets suggest that economic"--it says "growth" and I'd like to substitute "activity." The reason is that we are, I believe, still arguing and are mainly of the view that we continue to be in the midst of a productivity shock. I think this is more about activity than growth.
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What's the opinion? Does anybody support that?
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I'd rather be redundant than misleading.
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I think most people, unlike experts, understand growth more than activity.
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I don't know whether slowing activity actually means a decline.
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Slowing activity means the level as distinct from--
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Yes, as opposed to the growth.
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What we basically would be saying is that the economy is going down. We don't have that view.
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We think we have moderating growth.
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Further suggestions? If not, let's go to lunch.
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Would somebody like to move the minutes for the December 19, 2000 and the January 3, 2001 meetings?
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So move.
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So move.
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Without objection, they are approved. As you may recall, at our January 3rd telephone conference we accomplished some of the routine business that ordinarily is taken up at this meeting. As a consequence we need only complete a few other matters that are typically on the agenda at our initial meeting of the year. First...
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The proposed slate of officers is: Secretary and Economist: Donald Kohn Deputy Secretary: Normand Bernard Assistant Secretaries: Lynn Fox and Gary Gillum General Counsel: Virgil Mattingly Deputy General Counsel: Thomas Baxter Economists: Karen Johnson and David Stockton Associate Economists from the Board: David Howard...
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Would somebody like to move the slate? SEVERAL. So move.
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Without objection, so ordered. Our incumbent Manager of the System Open Market Account is a gentleman by the name of Peter Fisher, I believe! Is there any objection to appointing him to a new term? If not, I will assume that it is so ordered. The next item on the agenda, which is the discussion of the Federal Reserve p...
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I move to close the meeting.
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Second.
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Without objection. Messrs. Kohn and Fisher.
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Thank you, Mr. Chairman. Peter and I thought it best to begin with a discussion of the basic longer-run approaches to this question of how to reconfigure the System's assets as the Treasury debt is paid down. Then subsequently and separately we will go on to consideration of specific choices the Committee must make at ...
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I would also suggest that we combine comments with questions. Members should not feel inhibited in their remarks, thinking that all they should do at this point is to ask questions. That's unlikely to work in any event. President Broaddus.
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I'd like to comment, Mr. Chairman. I want to make a pitch for trying to arrange with the Treasury a way for us to stay with investing in Treasury securities only. It will take me a few minutes to do this, but I'll try to keep my remarks as brief as I can. In my view this is a really important issue that goes to the hea...
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In your scheme, what does the Treasury do with our payments to them for their debt?
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They, of course, would be paying interest to us and we simply would be turning around and paying it back to them.
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The issue basically is that they have to invest the proceeds from our purchases in something else.
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As I see it, they first sell their securities in the market. We buy them in the market; they are not selling directly to us. So that would be the form in which they would take the funds.
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It doesn't matter how it's done.
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They take in revenue and it could be used for whatever purposes they want.
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But the issue, in the context we're talking about, is that if the debt to the public is down to zero, they have to accumulate private assets.
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May I answer that please?
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Sure!
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I'm sorry to interrupt; I know this is unusual. The revenue for money creation could be regarded as basically the result, on a secular basis, of the growing demand for real currency balances that the public wants to hold. If one regards the revenue for money creation, which is sometimes called seigniorage, as a tax flo...
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Money is fungible; I understand that. It's not that I object to what President Broaddus is saying, I'm just asking a question. There are two regimes, one in which we accumulate private sector assets and one in which we don't. In the regime that you're suggesting there is double entry bookkeeping. My question is: What a...
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Well, the asset in the short run is probably some private asset. But over time adjustments could be made that would take that off the books.
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The only way to do that is to run a government deficit.
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They can basically rebate it as a tax refund immediately or spend it.
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That's right.
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Those are the two alternatives.
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The government would not accumulate private assets; the funds would just flow right through.
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That's right.
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The government never acquires debt. It just rebates it right back to the public instantaneously.
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Yes, but then that alters the view that we're in surplus. SEVERAL. Right.
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That's right; there is no surplus.
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One could argue that it is better from our point of view to have the credit allocation process be in the hands of the Federal government than in the hands of the Federal Reserve. But it is difficult to get around the fact that there is an allocation process going on in the consolidated monetary authority system, given ...
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The main issue is that we can provide the public--
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Let me stipulate something very important, which is that the government balance in terms of deficit/surplus is the same in the two regimes. The only difference is who is holding which assets. If you consolidate the Federal Reserve into the system, then there is a unique solution. The only issue occurs when you disassoc...
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That's certainly true given your assumptions about the rest of the government's fiscal position. President Broaddus's point is that no one in the government needs to acquire private assets to implement monetary policy.
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Nobody disagrees with you on that.
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Okay. Then if one of our goals is to minimize private assets acquired by the government, we could make that understood by the rest of the government, in which case they would do with the money what Governor Meyer is saying--
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Meaning, lower their surpluses and refund taxes.
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Think of it as a "money rain" every day!
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Excuse my interjection. I thought I had a very quick question with a simple answer. I didn't mean to get into this. The Vice Chair has preemptive rights.
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Thank you, Mr. Chairman. Let me make a quick comment on the issue we just discussed before I go into what I had intended to say. As long as the business cycle exists, I think there will be times when the government will and should be in surplus. And there are times when the government will and probably should be in def...
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President Hoenig.
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Thank you, Mr. Chairman. First of all, I'd like to say that these papers were really outstanding and advanced our thinking along quite some distance. I have some specific reactions to points raised in the papers and some broad reactions to the questions that Don asked. Let me start by saying that I certainly do agree w...
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Let me just say that I think we ought to stipulate that the very existence of a central bank, in and of itself, affects markets.
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Exactly.
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That is, as the central bank, we are a financial intermediary. And, although we're not very large, as the Vice Chair points out, we do by the very act of intermediation change the level of interest rates, even though we probably don't change the spreads between private and public securities in any significant way. But ...
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Our goal in a sense is to try to get through this transition without shocking the system as we move toward holding different types of assets. That's why I prefer this incremental approach, which takes us through a series of assets that we might hold while increasing, to the extent that is feasible, the amount of our cu...
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President Poole.
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Thank you, Mr. Chairman. I want to start by reinforcing Tom Hoenig's comment and congratulating the authors of all of these studies. This is a subject that is almost totally neglected in the academic literature, as far as I know, and I note that there aren't very many footnote references. I think it's important that we...
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There's a limit to that, unfortunately.
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I know there's a limit because there is only a finite amount of such assets in that market as well. Nevertheless, it might be sufficient in size, at least for a time, for us to do what we might need to do. And it seems to me that it would be a better principle. As I understand the current projections, assuming some fis...
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Governor Meyer.
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Thank you. Let me also begin by complimenting the staff on a very excellent set of papers. Let me note, too, that I begin with a quite open mind. My views are likely to change several times today as well as over time as we talk about this. What I want to do is to offer perhaps a still different perspective, so as to ge...
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President Santomero.
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Thank you, Mr. Chairman. I actually find it very difficult to address this issue in less than about a week and a half.
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Try to keep it down to a week, would you please! [Laughter]
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I also want to thank the people who put together the study. There's a lot of material and some of it is close to my heart. It was very well done, in my view. Let me try to restrict my comments at this moment to two points that seem central to this whole issue. Those two points are the question of risk in the Fed's port...
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President Jordan.
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Thank you, Mr. Chairman. First, I believe this is an extraordinarily important discussion for us to be having. Even if we didn't have the prospect of Treasury surpluses and the paying down of Treasury debt as the event forcing us to consider this matter, in my view it is sometimes useful to step back and think strategi...
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President Stern.
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Thank you, Mr. Chairman. I must admit that I'm still trying to digest this material and our resulting discussion. But let me just state a few of my thoughts and preferences at the moment. To me the most promising alternatives are the discount window alternatives, particularly the ACF. A combination of practical and oth...
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Governor Gramlich.
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Thank you. I've been marking down points as the discussion has gone along, and I initially put my name on the list when Al Broaddus spoke, but a number of other issues have arisen as well. First, I agree with Bill Poole that this is an important issue. It has not been thought about much, and if there is some way to put...
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Are you talking about your ex-friend? [Laughter]
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We've disagreed before and no doubt we will again. As I understand the picture here--and I must say that I haven't really focused on some of these issues before now--we have growing currency needs. If we were to back them by growth in our holdings of Treasury obligations, that would either put the Treasury in the busin...
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You mean shooting a mouse with a cannon.
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