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fomc | 2,001 | Normally we do indicate when it's effective. | 8 |
fomc | 2,001 | Some Reserve Banks are not in and it's confusing. Is that what you're saying? | 16 |
fomc | 2,001 | Actually, the sentence can be modified to say that the change is effective in the Districts noted and is effective for St. Louis the next day. Maybe that would be better. | 36 |
fomc | 2,001 | That's probably not a bad idea. In other words, the change is effective for eight Banks or-- | 20 |
fomc | 2,001 | In those Districts the change is effective immediately. In St. Louis, the change is effective tomorrow. | 21 |
fomc | 2,001 | Is it necessary? It seems there is more detail than is necessary in this release. SEVERAL. Yes, in this release. | 27 |
fomc | 2,001 | Have we ever said this before? | 7 |
fomc | 2,001 | We usually say this when St. Louis is included. I don't have a strong feeling about it. | 20 |
fomc | 2,001 | I would take it out. | 6 |
fomc | 2,001 | I think we could leave it out of this statement. You might have to explain it, but-- | 20 |
fomc | 2,001 | You know, we don't need it. We can say, "In taking the discount rate action, the Federal Reserve Board approved requests submitted by the boards of directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco." Period. | 63 |
fomc | 2,001 | Full stop. | 3 |
fomc | 2,001 | I know our boards of directors have to vote on it, but the reality is that we'll all pass it this afternoon. | 24 |
fomc | 2,001 | Not necessarily. SPEAKER(?) It won't be effective today in St. Louis. | 16 |
fomc | 2,001 | For some it may be tomorrow. | 7 |
fomc | 2,001 | Let's just take it out. If people have questions about it, we can answer them. | 18 |
fomc | 2,001 | Bill, does it matter to you if we announce when it's effective in your District? | 17 |
fomc | 2,001 | Well, to me the way to think about it is that the Board accepted the recommendation from the St. Louis Bank but because of our peculiar situation as a standard practice the change has to become effective the following day. But I don't think we need to have that detail in the press statement. | 58 |
fomc | 2,001 | But it's not important to you that we announce-- | 10 |
fomc | 2,001 | What is important is just the fact that the Board accepted our recommendation. That is what you did, and that's all you have to say. | 28 |
fomc | 2,001 | That's what's usually done. | 5 |
fomc | 2,001 | That's the operative point. | 5 |
fomc | 2,001 | The operative issue is that we accepted the recommendation of the change you wish to implement. We have now completed our formal agenda. Our next meeting is scheduled for March 20 and with that we can adjourn our FOMC meeting. | 47 |
fomc | 2,001 | I'd like to welcome Dino Kos to his first meeting as an officer of the FOMC. I tentatively welcome Dave Wilcox, but since he's not legally on board as an officer his welcome goes in escrow! We'll clear that up very quickly though, because our first agenda item is the election of Dave Wilcox as Associate Economist of th... | 95 |
fomc | 2,001 | So move. | 3 |
fomc | 2,001 | So move. | 3 |
fomc | 2,001 | I'll also move that nomination. | 6 |
fomc | 2,001 | Approved without exception. Welcome. Would somebody like to move approval of the minutes for the January 31st meeting? | 23 |
fomc | 2,001 | Move approval, Mr. Chairman. | 7 |
fomc | 2,001 | Approved without objection. And now we turn to Dino Kos. | 12 |
fomc | 2,001 | Thank you, Mr. Chairman. I'm going to continue the tradition of another tall, wavy-haired guy with glasses and refer to the charts that were distributed this morning.1/ | 36 |
fomc | 2,001 | I always thought that you prepared them for him! [Laughter] | 14 |
fomc | 2,001 | On the first page the familiar forward rate agreements depict in red the decline of U.S. interest rates over the last few months. After the Committee's January meeting, both cash and forward rates were stable at first but began to decrease as the equity market fell under pressure, with announcements of earnings shortfa... | 2,613 |
fomc | 2,001 | The difference in the March, April, and May projections of the New York Bank and the Board staff is really quite substantial. There's a lot of money in that 2 percentage point difference. Have you endeavored to find out which guess is more likely to be the appropriate one? | 56 |
fomc | 2,001 | You better say New York! [Laughter] | 10 |
fomc | 2,001 | I'm sure New York has the right answer! I have not endeavored to find out what the difference is in the models. I can only guess that there might be differences in capital gains projections. Is that the case, Don? | 46 |
fomc | 2,001 | I don't know. | 4 |
fomc | 2,001 | That might account for some of the difference. | 9 |
fomc | 2,001 | It doesn't matter. It's just that New York is right and we're wrong! [Laughter] I got the message! In Argentina, Mr. Cavallo is replacing Mr. Murphy, as I hear. I also gather that they've abandoned their austerity program as a consequence. | 55 |
fomc | 2,001 | I'm going to cover some of these developments in my briefing, so we might want to wait to discuss that. Actually though, I think there is some uncertainty about both of those reports. | 37 |
fomc | 2,001 | They're negotiating. | 3 |
fomc | 2,001 | Oh, Mr. Murphy is definitely out and Mr. Cavallo is in. Originally, Mr. Cavallo had been named cabinet secretary or chief. Now it appears that the current cabinet secretary might stay and that Mr. Cavallo will take the economy ministry post. But my guess is, whatever way it ends up, that he will have broad powers indee... | 72 |
fomc | 2,001 | Questions for Dino? If not-- | 7 |
fomc | 2,001 | I move approval of the domestic operations, Mr. Chairman. | 12 |
fomc | 2,001 | Without objection. All right, let's go to our chart show, so to speak. It used to be called that. | 24 |
fomc | 2,001 | Thank you, Mr. Chairman. If you simply picked up the March Greenbook and perused the forecast sheets, I could understand how you might conclude that the staff must have been on an extended vacation--either literally or figuratively--over the past two months. How could all of the events and turmoil of recent weeks have ... | 2,268 |
fomc | 2,001 | Developments in the global economy are moving quickly and not always in a welcome direction. This morning I will comment briefly on developments that have emerged since we prepared the Greenbook. They include the latest news from the Bank of Japan, the further upward drift in the exchange value of the dollar, the Janua... | 1,205 |
fomc | 2,001 | Questions for our colleagues? President Parry. | 9 |
fomc | 2,001 | Karen, I'd like to ask two questions about Japan. The first is, does the change announced by Japan indicate that in terms of policy they're embracing some form of inflation targeting? Secondly, about a month ago there was some discussion, in the press at least, indicating that if Japan reverted to its previous policy o... | 98 |
fomc | 2,001 | I think they came as close to inflation targeting as they could comfortably, given what they had said publicly not too long ago about it being inappropriate at this time. I see the announcement in some sense as a grand compromise, an attempt to be a little something for everybody. The people who have been advocating in... | 114 |
fomc | 2,001 | Right. | 2 |
fomc | 2,001 | Had they announced a higher number, I think it would not have been credible. So in my view they made a reasonable compromise on that score. Those people who have been arguing for some kind of liquidity-based, unconventional steps got a switch to reserve targeting instead of the current policy of interest rate targeting... | 316 |
fomc | 2,001 | Thank you. | 3 |
fomc | 2,001 | President Jordan. | 3 |
fomc | 2,001 | I have a couple of questions, Karen. One is a follow-up on President Parry's. I've wondered for some time in the case of both Argentina and Japan how one can know when, from the perception of the best policymakers in those countries, the situation has gotten bad enough to trigger action. In looking at this, my thought ... | 106 |
fomc | 2,001 | It's a skepticism about their ability to accomplish it, not about their perception that it's necessary. I think the biggest problem facing Japan right now is political. They are simply politically very weak. The LDP doesn't seem to know what to do. There are a few persons in the past six months or so who have articulat... | 358 |
fomc | 2,001 | Well, that's what I mean by "Is it bad enough to fix yet?" I think somebody once said that if you have no options you have no problem. They apparently still think they have a lot of options, as far as dealing with their people and getting the people to buy into a solution. | 60 |
fomc | 2,001 | I have been in Tokyo very seldom and I don't pretend to have close contacts, but it's certainly my impression that the population in Japan does not act as if the country is in crisis. They do not act, after 10 years in which these problems have plagued the economy, as if they are prepared to do anything in an effort to... | 257 |
fomc | 2,001 | Okay, that's helpful. The other question has to do with exchange rates because you suggested a hypothesis to me that I thought was very interesting. What I heard you saying is that expectations that the Federal Reserve either has or will ease enough to stimulate a stronger recovery, combined with expectations that the ... | 79 |
fomc | 2,001 | But only maybe! | 4 |
fomc | 2,001 | Okay, but I know that doesn't show up in any textbook. | 13 |
fomc | 2,001 | There is no interest rate arbitrage condition that is going to give you that one! | 17 |
fomc | 2,001 | So I'm wondering whether that reflects some serious rethinking about the factors that determine exchange rates over time. | 20 |
fomc | 2,001 | Yes, I suppose. We've actually done some research on that. We've taken a sort of kitchen sink approach and put everything we can think of on the right hand side of the equation and sorted through the most recent data. It did not yield any real breakthrough. It didn't give relative growth rates quite as much of a major ... | 108 |
fomc | 2,001 | Have you tried a coin? [Laughter] | 10 |
fomc | 2,001 | I'm a bit reluctant to get entirely on this relative growth bandwagon, even though I think market participants see the ECB's constant statements that they are somehow not very vulnerable to the rest of the global economy--that they're going to do just fine and therefore don't need to ease--as worrisome. I believe that'... | 272 |
fomc | 2,001 | Karen, is it possible that the change toward the United States and the dollar occurred much more slowly than the underlying productivity acceleration implied? Could there just be a lag effect here in the sense that a lot of the capital investment coming into the United States, specifically direct investment, is really ... | 174 |
fomc | 2,001 | That certainly could be. The fact is, even though the volume is reduced, that we still have a plateful of merger and acquisition announcements and so forth on the table. In that vein, we received one unexpected bit of information from the fourth-quarter balance-of-payments data. Many of the elements of the data are alr... | 195 |
fomc | 2,001 | You mean if the earnings fall, the capability to repatriate into another currency goes down and the dollar is therefore under less upward pressure? | 28 |
fomc | 2,001 | Well, I'm just thinking that in retrospect some people--the Japanese no doubt--didn't really think some of the investments they made in this country in the 1980s were such a good idea. And it's possible some of the Europeans will come to that view about the 1990s. | 60 |
fomc | 2,001 | President Hoenig. | 4 |
fomc | 2,001 | I have a couple of questions for you, David, and I'd like you to look out a little beyond the forecast horizon. You commented on the alternative scenario with a more aggressive reduction of the funds rate. I know you have projected the inflation rate out to 2002 under that scenario and I'd just like to get your impress... | 219 |
fomc | 2,001 | On your first question about the easier monetary policy scenario in the Greenbook, as you know, even in that scenario the unemployment rate still rises to nearly 5-1/4 percent by year-end and to just a little below 5-1/2 percent by the end of 2002. We don't see much disinflation benefit from that rise in the unemployme... | 325 |
fomc | 2,001 | Thank you. | 3 |
fomc | 2,001 | Vice Chair. | 3 |
fomc | 2,001 | Mr. Chairman, I'd just like to make a comment on some work we've been doing in New York on the mysteries of the exchange rate. Rather than go to the textbooks to try to figure out why the exchange rates were behaving as they have been, we attempted to look at what had actually happened for an explanation. If we go back... | 842 |
fomc | 2,001 | How does that explanation square with, let's say, the peak in the value of the dollar in February 1985, after a big run up, and the subsequent big run down? | 37 |
fomc | 2,001 | It doesn't. That looks like an aberration that doesn't have an explanation on the basis either of the fundamentals or of either of the two factors I've cited. We can't find anything to explain that except an enormous market overshoot. | 45 |
fomc | 2,001 | And the productivity differential, of course, is actually a real rate of return differential. | 17 |
fomc | 2,001 | Exactly. | 2 |
fomc | 2,001 | Which is sort of a standard. Indeed, that's essentially what Karen was arguing is going on at this particular stage. | 23 |
fomc | 2,001 | Yes. | 2 |
fomc | 2,001 | President Jordan. | 3 |
fomc | 2,001 | I wanted to follow up briefly on David Stockton's response to Tom Hoenig's question. One of the alternative simulations you typically included in the Greenbook last year was a lower NAIRU. I'm not a big fan of the NAIRU as a way of finding out what the inflation rate is going to be, but if you continued to provide that... | 85 |
fomc | 2,001 | There would be a significant disinflation built into the system. Even with that easier monetary policy, you would have to ease even more aggressively. We took that simulation out this time, not because we thought it was any less important than it has been in the past but because we were concerned about presenting too m... | 120 |
fomc | 2,001 | Any further questions for our colleagues? Yes, President Poole. | 13 |
fomc | 2,001 | David, I have a question about the saving rate. I'm sure that some of this internal debate you spoke of had to do with the saving rate. Perhaps it's a little below zero, but let's just assume it is zero for the moment. It's a lot easier to imagine it going to plus 4 than to minus 4; there's a sort of asymmetry built in... | 104 |
fomc | 2,001 | Well, it depends on what you mean by historical norms. If productivity growth were to return, let's say, to the 1 to 1-1/2 percent rate that we experienced for a significant period of time, that would be associated with a very substantial decline in the stock market and a more substantial rise in the saving rate. The s... | 136 |
fomc | 2,001 | But productivity growth from, say, 1948 to 1968 or 1973 was not all that different from what we're looking at today, yet the saving rate back in that era was much, much higher. | 44 |
fomc | 2,001 | Yes, but we've seen changes in the longer-term trends in some components of income. For example, transfer income, which involves a much higher propensity to consume, is a larger share of income now than it was in the 1960s. It can explain some of that longer-term decline in the saving rate. It's clear that the saving r... | 161 |
fomc | 2,001 | It's reconciled to the flow-of-funds numbers, which obviously are not fully independent but still show pretty much the same trend. | 26 |
fomc | 2,001 | Yes, indeed. We're talking about $15 billion or so here. | 14 |
fomc | 2,001 | Well, there's another possible explanation of this problem, which we're in the process of trying to evaluate at this point. If we look at the significant decline in the saving rate on the national income and product account definition by using flow-of-funds data--remember this excludes capital gains--what we find is no... | 354 |
fomc | 2,001 | That might be the mechanism, but that doesn't tell us whether it's really sustainable in the long run to have such a very low saving rate. | 28 |
fomc | 2,001 | Indeed. | 2 |
fomc | 2,001 | I've been worried about the saving rate, too. Dave, you said something that at a minimum may cause me to revise a comment I was about to make in the go-around. The personal saving rate is now negative .8, and by the end of the simulation period it goes up to plus 1.6--a 2.4 percentage point turnaround. Is any of that a... | 88 |
fomc | 2,001 | The change is behavioral. | 5 |
fomc | 2,001 | The change is all behavioral? | 6 |
fomc | 2,001 | Yes, it's behavioral. Also, we don't have the wealth-income ratio going back to the levels where it had been earlier. So, even within the simple framework that we used, there would be reason for the saving rate to remain below its historical norms. That is just another factor. The saving rate has fallen more in recent ... | 122 |
fomc | 2,001 | Further questions? If not, who would like to start the roundtable? President Parry. | 19 |
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