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fomc
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President Minehan.
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Thank you very much, Mr. Chairman. There's not a lot to say about the New England economy that I haven't said at the past several meetings. All the available data suggest that the regional economy continues to grow, albeit more slowly, with tight labor markets and prices that are rising more rapidly than elsewhere in t...
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President Hoenig.
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Thank you, Mr. Chairman. In the Tenth District, economic growth has slowed further since our last meeting. Manufacturing and even some areas of homebuilding are experiencing outright declines in activity while other sectors generally are growing at a slower pace. As far as we can tell, for the District's economy as a w...
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Thank you very much. President Guynn.
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Thank you, Mr. Chairman. Economic activity in our Southeast region continues to slow in many sectors, although by most measures overall activity remains at a very high level. Retailers were generally disappointed by the flat holiday sales compared to last year, and many expressed concerns about the impact of widespread...
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President Santomero.
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Thank you, Mr. Chairman. It seems to me that the question we're facing at this meeting is whether the economy in 2001 will behave more like the economy we had in 1995 or more like the one we had in 1990. In 1995 growth slowed substantially after the Fed had tightened policy over the previous year but there was no reces...
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President McTeer.
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I will have been on this Committee 10 years tomorrow and I've never seen a Beige Book as negative as the current one, and that's true both for the Eleventh District and for the overall summary for the nation. The economist at the Dallas Fed who manages our Beige Book contacts confirms that this was the most pessimistic...
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The sky has been "measurably weakened"? [Laughter]
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I was referring to that cartoon of a few years ago. It had a chicken with your head on it and it came off!
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I understand!
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Certainly the downside risks have increased, perhaps even since January 3rd, particularly on the international front. In recent weeks we've seen signs of slower growth abroad, with leading indicators in many of our key trading partners moving in the wrong direction. This could be the first time in a long time that all ...
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President Stern.
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Thank you, Mr. Chairman. Overall, the District economy has evolved recently largely as has the national economy, as best I can judge. Consumer spending was lackluster both during the holiday season and since then, and sales promotions and discounting have been intense. Employment gains have decreased and labor market c...
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On that pleasant note, why don't we break for coffee and come back? There's only one direction we can go from there! [Laughter]
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President Moskow.
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Thank you, Mr. Chairman. Unfortunately, I'm not much more optimistic than Gary Stern, who spoke before the break. As you would expect, reports from contacts in the Seventh District indicate even further slowing in activity, particularly in our manufacturing sector. In fact the news last week from our directors as well ...
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President Broaddus.
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Mr. Chairman, as elsewhere in the country, economic activity in our District has softened somewhat. It softened quite markedly in December and apparently somewhat further in January, although we have a few hints of some leveling out in District activity in January. And I gather that Baltimore's economy has been looking...
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I don't know about the rest of our colleagues, but I get a chart on M2 and M3 every week.
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So do I.
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So it's not as though we're not monitoring it.
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I really wasn't thinking about the aggregates so much, although certainly if we want to discuss money supply trends, that's fine with me. I'm just talking about taking a longer-term look at where we're headed and maybe reaffirming our objectives. I have in mind the kinds of discussions we had a few years ago when we we...
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I think we tend to do that in any event. Take this morning's discussion, for example. It was an add-on to a rather long agenda. We're going to have short agendas at some point and we can put in an agenda item on strategic and other related issues at that time. Vice Chair.
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Thank you, Mr. Chairman. The Second District trailed the national economy in strengthening in the early part of the 1990s and then grew a bit more slowly thereafter. Apparently justice prevails in the end because I think we have the most optimistic District commentary so far today. The Second District's economy has sho...
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President Jordan.
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Thank you, Mr. Chairman. I guess it's not surprising that the Twelfth and the Second Districts are doing well, in contrast to our region. We ought to be viewing it as payback time for the prosperity we enjoyed in the '90s. It probably will take long memories to remember how good it once was. I didn't really need to see...
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Governor Gramlich.
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Thank you, Mr. Chairman. At this point it's unclear to me whether the present pause in economic growth will be a relatively short inventory correction or a more serious downturn. But there's plenty of evidence that real output growth has stalled, and even with the cut we made in the funds rate earlier this month, the r...
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Governor Ferguson.
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Thank you, Mr. Chairman. Following the intelligent lead of my colleague, I also will truncate what I was going to say. I was going to begin by saying that the circumstances surrounding us seem filled with great uncertainty. But having listened to everybody who has spoken thus far, in some sense I think the circumstance...
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We're on a slippery slope!
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We may be on a banana peel! Let me note some of the reasons I think we're not fully there yet. First, most of the weakness that we've seen clearly is in manufacturing; it has not yet spread broadly into services, but it's broad and deep in manufacturing. Secondly, as we start or move toward the middle of this process o...
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Governor Kelley.
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Thank you, Mr. Chairman. In our perpetual journey along the economy's mythical curve, we came to a sudden hairpin turn late in the fourth quarter of last year. With a quick and aggressive maneuver, I believe we've stayed on track, but this passage is leaving us with a new landscape to negotiate. To belabor the obvious,...
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Thank you. Governor Meyer.
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Thank you, Mr. Chairman. The trend of downward revisions in the staff and private sector consensus forecasts, as well as in my own, has continued over the intermeeting period. While they now point to near zero or even slightly negative growth in the first quarter, there is yet no evidence that the forecasts for the nea...
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Thank you very much. Have we heard from everybody? No, President Poole has not yet commented.
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I didn't know I was going to get the last word this afternoon. In the Eighth District there is a sense of caution, but I think deep gloom would be the wrong term to use. People seem to feel that things have flattened out. The banking system appears to be strong; there is some increase in problem loans but not large num...
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You did get the last word. We will recess until 9:00 a.m. tomorrow morning. Thank you, everybody. Wednesday, January 31, 2001--Morning Session
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Mr. Madigan.
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As background for this briefing, I have distributed two charts from the Bluebook in a package entitled "Material for Staff Presentation on Monetary Policy Alternatives." 3/ The baseline scenario, shown by the solid lines in chart 4, used the key elements of the staff's view of the macroeconomy to extend the Greenbook f...
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Questions for Brian? Everyone is talked out! Let me start by reviewing what we discussed earlier just to give us a little context. We experienced a remarkable surge in activity during the first half of last year, partly in response to Y2K. We saw some extraordinary numbers. Production numbers for some high-tech industr...
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They are due out at 10:00 a.m.
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The figures will be quite strong. Now, having said that, of all the poor statistics we have, the housing sales numbers win the prize every year. They have the largest revisions and often even the sign is not right. But at this particular stage, I am not inclined to look a gift horse in the mouth. I do think the proposi...
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Mr. Chairman, I fully support your recommendation and the reasoning for it. I think the only possible alternative would be to ease even further, and in my view that would be very unwise because it clearly would give an indication that we do know something that other people don't know or that we're scared, neither of wh...
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President Hoenig.
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I'm in agreement with your recommendation, Mr. Chairman.
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President Stern.
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I fully support the recommendation. Let me comment briefly. I remarked yesterday that I thought the probability of recession was uncomfortably high. But what I would say even more strongly is that I recognize that I at least can't forecast turning points. And while I would like to base policy going forward on a forecas...
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President Poole.
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Mr. Chairman, I certainly support your recommendation. I'd like to make just a brief comment about the lags in this process. I think it's important to recognize that market interest rates have moved ahead of our actions in anticipation of what we're going to do. In explaining this move, when we're giving speeches and t...
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Governor Ferguson.
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Mr. Chairman, I support your recommendation. I also think that your analysis is absolutely right in the sense that what we're dealing with is a high-tech, highly productive economy that is slowing very quickly. We do have to be careful because it could pick up again, but at this stage I think 50 basis points is absolut...
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President Guynn.
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Mr. Chairman, I certainly agree with your recommendation. While we have reminded ourselves over and over, including in the comments you just made, that we can't do anything about the short term, I think we can shore up attitudes and expectations about what's likely to unfold. In the notes I had written out on policy, m...
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President Parry.
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Mr. Chairman, I enthusiastically support your recommendation. It seems to me that the financial markets clearly are expecting a move of this magnitude and if we were not to move along these lines, I think it could cause some problems.
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President Moskow.
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Mr. Chairman, I support both parts of your recommendation. I believe we've all been particularly impressed by the speed of this slowdown and I'm hopeful that this action will help us to achieve a quick recovery and to avoid moving into a recession.
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Governor Gramlich.
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Mr. Chairman, I support the recommendation. Yesterday I may have violated Bill Poole's rule about optimal degree of gloom. In fact, I suppose I consider the high-tech V-shaped recovery the most likely outcome. But I do think there is some probability that we will see something worse than that. I strongly support your i...
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President Minehan.
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I also agree with both parts of your proposal. Whether one thinks like Governor Gramlich that things could well be worse, or like I do that fiscal stimulus might come earlier and be larger than expected and we could have a rebound sooner than anticipated, front-loading policy right now seems to me the wisest course. It...
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President Broaddus.
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I support your recommendation, Mr. Chairman.
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Governor Kelley.
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I support your recommendation, Mr. Chairman.
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President Santomero.
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I support your recommendation, Mr. Chairman. I also want to associate myself with President Guynn's comments about the need to be careful with regard to the psychology associated with the wording of our press statement.
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President Jordan.
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Thank you. I support the 50 basis point move today and I think 100 basis points of easing in a four-week period does achieve a significant degree of front-loading. It is early and substantial. And I would support that even though I think the baseline forecast is the best projection to go with. It's the one I certainly ...
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We've done it before. President McTeer.
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I think we can wait and worry about that later. For the current circumstances, I think your recommendation is just right.
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Governor Meyer.
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Mr. Chairman, I support your recommendation. I believe that's the right move for today but I completely concur with the remarks of President Jordan. I think we have to exercise care in the expectations that we encourage in the markets about the certainty and the cumulative size of the likely amount of future easing, pa...
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We can do that prior to the July--if you'll excuse the expression--"Humphrey-Hawkins" testimony.
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It's the semiannual--
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The semiannual Monetary Policy Report.
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May I ask the Federal Reserve Board to adjourn to my office to discuss the discount rates? Let me also request that Lynn Fox distribute the preliminary draft of our press statement.
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Do you want to vote first? You haven't taken the vote yet.
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We didn't? [Laughter]
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That's something to report in the minutes!
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I was going to do that when we came back, but I guess not.
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That's an abnormal sequence of FOMC proceedings.
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I appreciate the assistance. Would the Secretary read the text?
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The wording is from page 17 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 with...
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Call the roll.
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Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Ferguson Yes Governor Gramlich Yes President Hoenig Yes Governor Kelley Yes Governor Meyer Yes President Minehan Yes President Moskow Yes President Poole Yes
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Vice Chairman, do we now have your permission to have the Board members meet in my office?
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You certainly do!
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I request that we have a temporary recess.
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Any comments, concerns, or otherwise about the draft press release?
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Mr. Chairman, Larry Meyer and a couple of other people have asked why the St. Louis discount rate change is not effective today. The reason is that the State of Arkansas has some bank usury ceilings that are tied to the discount rate. As a practical matter, the change in the discount rate can't become effective until t...
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So you will go with the new rate officially tomorrow?
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That's correct. We can't make it effective immediately.
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Okay. Is this press statement satisfactory to everybody then?
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I think this is the first time the press release has made reference to when the discount rate change is effective. This seems a bit ambiguous because not all of the Reserve Banks are a part of it. I think it might be better not to include the entire last sentence.
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