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fomc | 2,001 | President Santomero. | 5 |
fomc | 2,001 | In my view your agenda list is exactly right. One request I would make is that you not think about the ACF process in a manner that is overly complicated. At the end of the day we're talking about the potential of an occasional auction that is routinely offered--it could be once a month--for a block of funds that would... | 147 |
fomc | 2,001 | Is everybody finished with this discussion? We can now go back to the usual meeting agenda! Peter. | 20 |
fomc | 2,001 | Thank you, Mr. Chairman. I'll be referring to the familiar package of charts with a Class II peach cover. 1/ The first chart depicts current and forward deposit rates. U.S. rates declined sharply following the Committee's January 3rd reduction of the fed funds target rate by 50 basis points. But the change in expectati... | 2,119 |
fomc | 2,001 | Questions? Yes, President Minehan. | 8 |
fomc | 2,001 | Just bear with me. This might be a dumb question, but why are we focused on reducing the amount of term RPs? | 26 |
fomc | 2,001 | I am focusing on it as the residual. It's not a dumb question, Cathy. I probably didn't make myself clear, so let me try to do that. In 1998 and prior years we purchased Treasury securities outright to meet the growth in underlying factors, and repos were used simply to deal with short-term fluctuations. As I tried to ... | 381 |
fomc | 2,001 | I got your message of concern about outright purchases. Maybe it's the terminology that's not sinking into my head. You are making the distinction between term RPs and outrights. Is that right? | 38 |
fomc | 2,001 | Yes, and shorter-term RPs--five-day, three-day, two-day. | 17 |
fomc | 2,001 | So you are concerned about the amount of outrights but you also want to reduce the amount of long-term repos? | 23 |
fomc | 2,001 | My preference would be not to reduce the book of long-term RPs. I'm telling the Committee that I do not plan to reduce it to zero. | 30 |
fomc | 2,001 | But you are planning to reduce it from $19 billion to $10 billion? | 16 |
fomc | 2,001 | On just a pure maintenance period average basis, yes, we are going to move into the area of $10 billion. Forgive me, Cathy, it's my lack of clarity. There is a risk that redemptions will be higher or that some reserve factors will grow faster than projected. If that happens, we could have a larger RP book between now a... | 114 |
fomc | 2,001 | Basically you're saying, ceteris paribus, that you are more or less going with case "B"? | 22 |
fomc | 2,001 | Case "B" is what we'll be aiming at. That is what I'm saying. My apologies! | 20 |
fomc | 2,001 | The key is that the term RP is the residual. That's his fudge factor. | 16 |
fomc | 2,001 | I realize that. I just wondered why he was so intent on reducing that residual. Why not let that residual be what it needs to be? | 29 |
fomc | 2,001 | When the Committee discussed this topic a year ago at the February FOMC meeting and again in March some members expressed concern about a large repo book against a mixed pool of collateral. I'm trying to run a middle ground between those concerns, which I understand, and-- | 53 |
fomc | 2,001 | Maybe I don't understand what was behind the authorization we approved earlier today. We extended, albeit just for another year, the same authorizations we gave you for two years running. That is, you were authorized basically to go along the same track you've been on and to explore diversification--not with an idea of... | 116 |
fomc | 2,001 | I think you've expressed it very well, Cathy. I'm suggesting that taking the longer-term RP book down to $10 billion is a target but that faster growth in reserve factors or higher Treasury redemptions would tend to push it back up toward $20 billion, though I don't know quite how much. So the "fudge factor" is $10 bil... | 76 |
fomc | 2,001 | It's ceteris paribus, in other words. | 11 |
fomc | 2,001 | Yes. | 2 |
fomc | 2,001 | You plan to be at $10 billion but you want to have the leeway to keep it where it is? | 23 |
fomc | 2,001 | Yes. | 2 |
fomc | 2,001 | All right, I understand! | 6 |
fomc | 2,001 | May I come in on this point? If I'm hearing you right, Cathy, you're asking why he doesn't take it down not to $10 billion but to $15 billion or $18 billion, right? | 41 |
fomc | 2,001 | I'm wondering why he wants to take it down. I think he's telling me that he's taking it down so he has the leeway to take it back up again. | 33 |
fomc | 2,001 | Yes. | 2 |
fomc | 2,001 | We don't need to be driven by habit. But after Y2K we had a term RP book of $140 billion. We were able to wind that down to about $10 billion, given the pace of outright accumulation we were comfortable with. That's where we were last August. | 56 |
fomc | 2,001 | Okay. | 2 |
fomc | 2,001 | The book then grew to about $23 billion at year-end and we're in the process of getting that level back down. | 24 |
fomc | 2,001 | I understand. | 3 |
fomc | 2,001 | That level, though, may be higher than $10 billion, as I see it. | 18 |
fomc | 2,001 | I understand finally. I'm sorry! | 7 |
fomc | 2,001 | No apologies required! | 4 |
fomc | 2,001 | Further questions? | 3 |
fomc | 2,001 | I move approval of the domestic operations, Mr. Chairman. | 12 |
fomc | 2,001 | Thank you, Mr. Vice Chair. Without objection they are approved. Let's move on to the staff report. David Stockton, Karen Johnson, and Larry Slifman--an awesome trio! | 38 |
fomc | 2,001 | We will be referring to the package of materials you've received, entitled "Staff Presentation on the Economic Outlook." 2/ As you know from the Greenbook, we are expecting a sharp deceleration of production in the first half of 2001, as shown in line 1 of the table in your first exhibit. This pattern reflects, in part... | 2,111 |
fomc | 2,001 | As Larry has just noted, our expectation that the growth of structural labor productivity will be well maintained over the next few years is a key element supporting aggregate demand during the projection period, while at the same time also helping to limit inflation pressures. The upper panel of your next chart lays o... | 2,622 |
fomc | 2,001 | The fundamental challenge we faced in putting together the foreign outlook this time was to assess the net effect of spillovers from the slowing of U.S. real output growth and the internal factors that had led to robust expansion abroad throughout much of last year. The transmission of U.S. developments to foreign econ... | 2,662 |
fomc | 2,001 | Given the length of our presentation, you may be wondering whether this is a briefing or a hostage taking! [Laughter] So I'll try to be mercifully brief. The final chart presents your projections for 2001. Since July, your forecasts for nominal and real GDP have been revised down, as has your forecast for PCE price inf... | 123 |
fomc | 2,001 | Why didn't you show the July staff forecast so we could see how wrong that was? | 17 |
fomc | 2,001 | It must have been just an oversight on my part! [Laughter] | 15 |
fomc | 2,001 | You ran out of ink! That was a very interesting presentation and quite thorough. Questions for our colleagues? | 21 |
fomc | 2,001 | I have a question about the projected inventory adjustment in this first quarter of 2001. It is very sharp, of course. I was just wondering if that's in line with historical experience or if you see some change in the structure of the economy that is causing it to be as sharp as you have projected in this quarter. | 65 |
fomc | 2,001 | It's probably on about the same scale relative to what's going on in terms of final demand and so on. It's a touch sharper and faster than historically; there's no doubt about that. And that is based on our judgment that there have been changes in the flexibility of businesses, both in terms of their labor inputs and t... | 115 |
fomc | 2,001 | President Parry. | 4 |
fomc | 2,001 | Karen, you indicated that growth in Japan is going to remain low; you also noted that Japan is probably going to record its fourth consecutive year of consumer price deflation. That is such a poor outcome for Japan. Do you think this is likely to cause them to shift in some way their political approach to economic poli... | 64 |
fomc | 2,001 | I've given up hope that anything will cause them to shift in some way their political approach! There is an increasingly intense debate going on yet again in Japan, sparked in part by the fact that the yen has moved so much over the last month or so. And officials of the Bank of Japan on the one hand and the Ministry o... | 328 |
fomc | 2,001 | Thank you. | 3 |
fomc | 2,001 | It's called a hedge. | 5 |
fomc | 2,001 | It sounded rather pessimistic! | 6 |
fomc | 2,001 | I think she's absolutely right on that. | 8 |
fomc | 2,001 | They've lost their financial intermediation because they only have banking. | 14 |
fomc | 2,001 | Right. | 2 |
fomc | 2,001 | And the banking system with all the inputs of taxpayer money continues to deteriorate. If they can't respond to that, I don't know what is going to make them respond. It's just scary. President Jordan. | 41 |
fomc | 2,001 | Thank you. I'm following up on Mike Moskow's question about inventories. I want to tie it together with your assumptions and what you know about imports because they are big swing factors quarter to quarter, both compared to the December Greenbook projection versus now and also going forward. I can imagine a scenario w... | 107 |
fomc | 2,001 | Well, let me talk a little about what we know. We know that much of the inventory overhang initially began in domestically produced autos. We know the physical size of that overhang. So, that clearly is one sector where we could say that the excess inventory has been in domestically produced goods and where we can set ... | 259 |
fomc | 2,001 | I don't know a lot of detail since we only have trade data through November and we think some of the biggest shocks might have come after that. Imports of consumer goods and some industrial supplies actually held up in November but we're expecting them to fall off and join the crowd in the December data, which we will ... | 89 |
fomc | 2,001 | The one sector you didn't mention is retail. Very large retail companies headquartered in Cincinnati and Columbus are telling us that 70 percent or more of their stock is imported and that the aisles are full of goods and no customers. | 45 |
fomc | 2,001 | We do have some export data from other countries. It's clear that there have been sharp reactions and that some of this correction will take the form of a big drop in imports in December and January. That will be the transmission mechanism to some of these countries. Indeed, I think that's to be expected. We did see so... | 108 |
fomc | 2,001 | Do we have customs receipts for December yet? | 9 |
fomc | 2,001 | Not that I'm aware. I don't think it's complete. I have not seen any. | 17 |
fomc | 2,001 | I'm talking about the data that we previously used to try to estimate imports. It didn't work all that well. | 22 |
fomc | 2,001 | No, it didn't work well. There were apples and oranges problems in trying to use those data and we had to be careful. Those data have not been routinely used for some time now. | 38 |
fomc | 2,001 | The reason I raise the issue is that if something very dramatic was going on in December, even that terrible series is likely to show it. | 28 |
fomc | 2,001 | Yes, that might show it. I will ask whether that series, having fallen into disrepute, nonetheless exists so that we might look at it. | 31 |
fomc | 2,001 | President Jordan, I'd also note that our GDP forecast in some sense takes account of what we see happening to industrial production, which is domestic production. We saw such a sharp contraction in manufacturing activity in December--and in part just on the basis of what we know about autos--that we would expect anothe... | 87 |
fomc | 2,001 | Governor Gramlich. | 4 |
fomc | 2,001 | You have forecast a fairly sharp recovery in the second half of the year after we get through with the inventory correction. I believe a lot of that hinges on your assumptions first, that production hangs in there and second, that that gets factored into people's permanent income expectations and their consumption beha... | 96 |
fomc | 2,001 | That's a good question. I can see how the confidence surveys--because the questions are asked in terms of one's expectations about what will happen to the economy--could be plunging and yet people's views with regard to their own personal situations and their individual longer-run income prospects could be well maintai... | 162 |
fomc | 2,001 | I'd say it's a serious concern because we have consumption slowing down rather dramatically but not declining, and one could look at those consumer surveys and certainly be more pessimistic. A couple of small factors held us back from being even more pessimistic about the near-term consumption outlook. One was that we ... | 151 |
fomc | 2,001 | The figure out this morning was also supportive of that view. | 12 |
fomc | 2,001 | Yes, it was still up 2-1/4 percent for the first three weeks of January over December. But I'd say there are very significant risks in this area. The charts we've shown you on consumer sentiment certainly are disturbing. | 47 |
fomc | 2,001 | Do we have any evidence that consumer confidence indexes at the point when they are taken are a coincident or a leading indicator of consumer spending? | 28 |
fomc | 2,001 | Well, the series that Larry has plotted in his charts, which is the Michigan expectations index, is actually a part of the leading indicators. So there is some evidence in that index that expectations tend to lead overall activity. In terms of the predictive content of the confidence measures for consumption, they tend... | 80 |
fomc | 2,001 | One would certainly think that there'd be very little predictive content. When people get gloomy they don't go to the store. It's not as if they say, "Well, I won't go to the store tomorrow." | 42 |
fomc | 2,001 | Actually Jeff Fuhrer, who is here today, has done a lot of the staff's work on this. As we've noted many times before, the one series that seems to have a bit of predictive power is the one about unemployment expectations. | 48 |
fomc | 2,001 | Mr. Chairman, at our Bank we've run a lot of regressions over the years on these consumer sentiment surveys to see whether they're leading indicators. It has been our experience that it's very hard to get any predictive power out of them. | 47 |
fomc | 2,001 | The way an economy comes back in this context, even with consumer attitudes deteriorating--providing that final demand is not falling very rapidly--is for production to move sufficiently below the level of consumption so that the rate of inventory liquidation is very large. The mere fact that there is a zero out there-... | 266 |
fomc | 2,001 | I want to thank the staff for preparing the alternative simulation that has a monetary policy assumption that more or less approximates the readings from the fed funds futures market. Could you help me to understand that by explaining longer-term interest rates in that forecast relative to the baseline and how that fee... | 67 |
fomc | 2,001 | Sure. We don't call that the "full Poole" simulation. It's the "partial Poole" simulation, if I may put it that way. In that simulation the only additional financial market variable that we put into the model was the path for the funds rate taken from fed funds futures and Eurodollar futures. We allowed the model then ... | 155 |
fomc | 2,001 | As I understand it, in the baseline forecast you have long-term interest rates remaining about where they are, which is the only rational forecast of long-term interest rates anyway. I say that because if you had an expected major change, you'd have big capital gains and losses that should not exist in the marketplace ... | 102 |
fomc | 2,001 | Vice Chair. | 3 |
fomc | 2,001 | At our last board meeting in New York our directors were less than kind or fully complimentary about our forecasting skills, and other than trying to stick up for my colleagues I didn't have a very good answer for them. Do we have a process around the System of asking--given that in our forecasts we all missed this sha... | 94 |
fomc | 2,001 | We don't have a formal process of a forecast-pooling comparison across the System. I do like to think that we are in touch with the staff at the Reserve Banks, especially at the Banks that prepare formal forecasts, and compare notes. Certainly the research program of the System is intended to address those issues, thou... | 119 |
fomc | 2,001 | I think we collectively wonder whether the new economy, or whatever elements in it prove durable, has changed the dynamic of the way things work. We are just too close to it at this point to judge, but we will keep asking that question. | 49 |
fomc | 2,001 | I think part of the answer is the new economy. We can't explain it all in terms of the new economy because the model reflects the history of all previous periods. I can't speak for the models that we use formally either at the Board or at the Banks, but I can speak for my model, which I ran for many years and whose str... | 446 |
fomc | 2,001 | I made the comment to my directors that certainly last September, October, and November I was talking a lot to people who said that the economy was going to hell. But every month of every quarter I'm talking to people who say that the economy is going to hell, so that doesn't help me a whole lot! | 62 |
fomc | 2,001 | And that's the source of the argument that the stock market has forecast seven of the last three recessions. People's memories are remarkably selective in these sorts of periods. In any event, I would conclude that we don't have the capacity actually to forecast a recession. Moreover, I would argue that a recession evi... | 483 |
fomc | 2,001 | Mr. Chairman, Twelfth District employment growth accelerated in the fourth quarter. The 4 percent annual rate of increase in employment in December pushed the growth of jobs since September to a bit over 3 percent. The expansion was broad-based. Five District states reported job growth rates of 3 percent or higher for ... | 654 |
fomc | 2,001 | May I interrupt you for just one second? | 9 |
fomc | 2,001 | Yes. | 2 |
fomc | 2,001 | Where is the 4 percent increase in capacity coming from--from bringing plants back off maintenance? | 19 |
fomc | 2,001 | No, there are two new plants. | 8 |
fomc | 2,001 | Two new plants will add 4 percent and you're not losing any other facilities in the process? | 19 |
fomc | 2,001 | This is new capacity. In addition, some plants that are off line will be coming back because many of them are down temporarily for repairs and related reasons. | 31 |
fomc | 2,001 | Thank you. | 3 |
fomc | 2,001 | Turning to the national economy, the pace of economic activity appears to have slowed sharply in the current quarter, and output from the manufacturing sector has been especially hard hit. On the demand side, declining consumer sentiment and weakness in consumer spending, especially for durables, certainly are notewort... | 293 |
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