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fomc
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I agree with Tom Hoenig's comment. I, too, in hearing you, thought that this statement would be much starker about an intermeeting move, but I'm comfortable with this wording. I would also agree with Tom, though, on taking out the word "especially."
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Well, we have a majority now in favor of the statement. Let me see if I can get a vote in effect, not a formal vote, on the word "especially." Why don't I quickly go around the table on that point and then we can close this discussion. Just indicate "yes" or "no" on the word "especially." Vice Chair.
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Yes.
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What does a "yes" vote mean? Does "yes" mean "especially" is in or out?
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If "especially" is in, the word is "yes." If it is out, the word is "no." Okay? I'm sorry, the Vice Chair is yes. Governor Ferguson.
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Yes.
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Governor Gramlich.
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No.
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President Hoenig.
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No.
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Governor Kelley.
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No.
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Governor Meyer? Oh, you're already--
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I can't vote "no"?
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No. You don't get a vote! [Laughter] You already voted "no" on the whole sentence.
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Okay.
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The others have already expressed their views so the word "especially" is out. I ask the Secretary to read the appropriate directive and let's vote on it.
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This language is on page 11 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...
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Shall we vote?
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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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I'm glad Governor Meyer and I got to vote on this one!
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Well, you had already said "no" on including the sentence. If you vote against the whole sentence, then voting on a word is irrelevant.
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One can't vote against "especially" doubly? I was looking forward to voting. [Laughter]
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Okay, what was your vote?
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No. [Laughter]
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For the record!
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I would like to adjourn this meeting temporarily so that the Federal Reserve Board can meet and adjudicate the requests of all twelve Reserve Banks on the discount rate. [Recess]
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The Board has approved the requests of all twelve Reserve Banks for a 50 basis point reduction in the discount rate to 4-1/2 percent. Finally, our next meeting, as all of you know, is scheduled for May 15th. And that is the official end of this meeting. Luncheon is served and Don Winn will fill us in on a few issues th...
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Would somebody like to move approval of the minutes of the March 20th meeting, which also cover the conference calls of April 11th and 18th ?
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So move.
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Without objection, they are approved. Dino Kos, you're on.
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Thank you, Mr. Chairman. I will be referring to the charts that were distributed this morning.1 The top panel of the first page depicts U.S. cash and forward 3-month rates. The cash rate is down about 3/4 of a percentage point since the day before the Committee's intermeeting move on April 18th. The 3-month forward rat...
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Questions for Dino?
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Mr. Chairman?
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Yes.
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This is a question for Dino or for Don Kohn. As shown on page 2 of Dino's handout, the yields on 10-year and 30-year Treasury bonds actually hit a low point at roughly the time of the March FOMC meeting and, of course, have moved up since then. It's rather interesting that since that time in March the Greenbook forecas...
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Especially recently, with the steepening of the yield curve, there has been chatter in the markets about that as a possible explanation. I don't know that forecasts of inflation are actually rising. At least in my reading of the research and commentary, I haven't seen that people are raising their expectations for infl...
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Well, usually there are two reasons. Your answer implied one, which is that the decline in the funds rate raises the prospects that the economy will recover. And the other is the possibility that inflation could become more of a concern.
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There is a third, which may in fact be relevant here. Since our March meeting, if one listens to the discussions coming out of Treasury and the White House, the presumption of eliminating the Treasury debt is becoming less vocal and more attenuated. Hence, the reduction in yields attributable to a scarcity premium is v...
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Right.
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There may be more involved in that issue than we know.
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I think there has been an interesting disparity over the intermeeting period between the views of the markets and the views of economists. The markets seem to have become more optimistic about where the economy is going and its potential for recovery, whereas the economists--not just the economists in this building, bu...
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Remember, there was a bulge in the spread against the staff's off-the-run synthetic yield measure in April of last year and it then came all the way down.
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Right.
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We're just back to where it was.
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Of course, the Greenbook forecast would suggest that the price pressures, if anything, are likely to be a little less.
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Right, but that's part of that disparity we're talking about.
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Thank you.
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Further questions for Dino? If not, Vice Chair.
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Move approval of the domestic operations, Mr. Chairman.
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Thank you. Without objection, they are approved. Dave Stockton and Karen Johnson, you're on. SEVERAL. We need another motion.
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We have one more issue to consider--currency swaps.
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Oh, I beg your pardon. Not that I wish to get beyond that issue! [Laughter]
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A little psychology here.
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Well, if we move fast enough, maybe nobody will notice! [Laughter]
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Unfortunately, we need a motion!
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Sorry about that. Dino, why don't you explain the issue?
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Thank you. I'll try to be quick. I circulated a memo late last week with some housekeeping items relating to our foreign currency reserves. Two items were for information. One item--the renewal of our swap lines with Canada and Mexico--requires action by the Committee. I think everybody will remember that all of the ot...
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Yes. I think your comments summarized the situation. I would just add that the Mexicans want the ending of these swaps to be part of a series of actions they are planning, having to do with some internal reforms they're attempting. Their hope is to get a CCL relationship established with the IMF, which would be a very ...
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Yes. In my conversations with the Mexicans, I was not surprised at their position. Indeed, it's fairly clear that they're willing, though obviously reluctantly, to unwind this. And they understand where we're coming from. I found the Canadian position really a surprise, given their floating exchange rate--
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I think it differs among the various people involved in the Canadian situation.
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Absolutely.
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Well, I have not had a chance to speak to Paul Martin on this, but I cannot imagine that he would resist this. They don't have a fixed exchange rate. They don't have a need for very large interventions that they can't support. So the logic of retaining the swaps just seems to be utterly missing.
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Well, from the point of view of those in the central bank who were described to me as having at least paused when this was suggested, the swap could be a useful instrument. If they never used it, that was fine. But the view was: Why give it away if they don't have to?
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And there's the change of central bank governor. This issue has come up at a time when he's adjusting to his new job and I think he doesn't want to change anything right now.
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He's dodging all bullets. [Laughter]
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I wouldn't lay it at his feet. As I understood it, the hesitation came more from the operational people--those who carry out policy--rather than those who make policy.
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Right.
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They see the swaps as an extra source of funds they can use if they ever want to, so why give that up? I don't believe there's really any thoughtful resistance.
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It's just not credible. You may recall that when this issue came up a year ago, we indicated that with a new Administration we'd have to get it readdressed because the old Administration raised obstacles in certain regards. As far as I can judge, the Treasury has been very much engaged with us on this and I think we wi...
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So even though there is no great ideological purity in our position, but rather a need to renew these swaps for another year while the negotiations take place, we do have to approve them again.
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Yes. Any comments, questions, or concerns that anybody wishes to raise?
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I just want to get some sense of the time frame we're talking about. You said it would take several months. Can we anticipate--it's such a wonderful opportunity and I'd hate to see us--
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I don't want to make a forecast. In part it may depend on how quickly the Mexicans can negotiate a CCL with the IMF, and that's very difficult to judge. The Canadians need to have their own discussion. So again, I wouldn't make a forecast in terms of weeks; I think it may take longer than that. But I believe we all thr...
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The Mexicans have to get a fiscal reform through their congress, and that has been slowed down a bit. I think they are still likely to get that done, but they certainly would not want to move on this as an isolated event until that happens.
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Okay, would somebody like to move renewal of the reciprocal currency arrangements?
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So move, Mr. Chairman.
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Are there objections? Hearing none, I will assume it's by acclamation, though not exactly. Now we turn to Dave Stockton and Karen Johnson.
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Thank you, Mr. Chairman. In reading our discussion in the Greenbook of the multiple sources of revisions to our projection this round, you might have sensed a desire on our part for you, as policymakers, to share our pain, as economic forecasters. We did, indeed, have to cope with many significant developments of conse...
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Our outlook for real output growth abroad this time has been revised down, particularly in the very near term, as data for several key regions suggest more weakness than we had previously incorporated in the forecast. We still look for the projected rebound in U.S. real GDP growth, along with past and prospective stimu...
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Questions for our colleagues? President Broaddus.
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David, you pointed out, as is well known, that spending on equipment and software has been very weak and continues to be weak. But I noticed in going through the Greenbook that nonresidential construction outlays are still quite strong. I know some of that reflects drilling activity and, of course, the investment proce...
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Well, the continued strength of those data has been a bit of a puzzle. As you point out, some of it is explainable by the surge in drilling and mining activity that has accompanied the run-up in oil and gas prices. We are not expecting that current pace to continue going forward. We anticipate a rather significant slow...
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President Moskow.
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David, I have a question for you. You started out your comments by saying the economy is very weak, though not in a recession. And then I think you said we are not far from a recession. Yet when I look at the alternative simulations in the Greenbook, none of the downside scenarios appears to put us into a recession. In...
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A new model! [Laughter]
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Gee, I was going to say that, Mr. Chairman! I would caution that in some sense we can make the model produce a recession. That is, we can give it a large enough shock to push the economy into recession. But, in fact, I think it is a feature of most linear models of the economy that they do not capture the kinds of proc...
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So the most likely scenario would be higher unemployment that triggers weaker consumer confidence, which feeds into weaker household demand than is actually shown here?
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Yes. And that, combined probably with some retrenchment in business spending and some more significant cutbacks in production, could lead to something that is a genuine cyclical downturn.
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So the missing factor is consumer confidence?
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Confidence, one way or another. It could be business confidence. Another possibility is that the high-tech "meltdown"-- we're going to have to start inventing new names for these phenomena as we revise down our forecast more and more--does not produce a recession, but leads to a shift in business confidence. And that i...
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Thank you.
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Is it correct to say that we just don't have enough episodes of recessionary periods to be able to infer what happens to the coefficients and nonlinearity, as you put it, during those times? I gather that is correct, is it not?
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Well, that would certainly be one reason why a recession is very difficult to forecast. We really think of each recession as being only one data point, and there aren't that many recessions in the postwar period to begin with. Another factor just may be the types of quantitative models that we're dealing with. Our mode...
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President Parry.
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Karen, I have a couple of questions about Japan. The Greenbook projection indicates that by the end of 2002 consumer prices will have declined in Japan in each of the preceding four years. And the quarterly table has consumer prices declining in every quarter over the three years through 2002. What would you say are th...
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Well, as you saw in the Greenbook, we think this deflation will continue for at least the six quarters that remain in our forecast horizon. There aren't too many more steps that the Bank of Japan could take in a monetary policy sense. And I am impressed by the fact that they have basically driven the cost of liquidity ...
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Right.
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It seems largely caught up in market expectations on the one hand and the politics of the situation on the other. And the politics extend not just to the dollar/yen and U.S./Japan relationship, but to various trading partners and the concerns they express from time to time about what a big depreciation in the yen would...
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Thank you.
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