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fomc | 2,001 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 2,001 | President Jordan. | 3 |
fomc | 2,001 | I support the 50 basis point reduction in the target rate today. But for the period between now and the next meeting, I think the statement that was included in our announcement of the 17th is probably going to be needed again. As the President said, the terrorists decided when and how this started. The United States a... | 120 |
fomc | 2,001 | The market will assume that. | 6 |
fomc | 2,001 | Yes, I agree with the Vice Chair. Indeed, one of the things we haven't discussed relates to the implications of another episode. My impression is that in such an event we will do what we've done in the past. We would issue an FOMC statement at that time indicating in effect what you're suggesting. I prefer not to put t... | 89 |
fomc | 2,001 | I support your recommendation. | 5 |
fomc | 2,001 | President Stern. | 3 |
fomc | 2,001 | I support your recommendation. | 5 |
fomc | 2,001 | President Poole. | 4 |
fomc | 2,001 | Mr. Chairman, I support your recommendation, but I would like to add a comment. We've talked a lot about business and consumer confidence, and I think the state of confidence is not independent of our own visibility. Let me emphasize that point by assuming something contrary to fact because I think it will make the poi... | 257 |
fomc | 2,001 | No, I think hunkering down was the appropriate thing to do right after the shock. | 19 |
fomc | 2,001 | Right, but we're now three weeks beyond that shock. | 11 |
fomc | 2,001 | Yes, I agree with you. There's certainly no need for us to change our normal practices. I do think our degree of uncertainty is higher, but that's the nature of the game. | 37 |
fomc | 2,001 | Well, I just wanted to make that point clear because I feel very strongly that we must not disappear. | 21 |
fomc | 2,001 | No, I agree with that. | 7 |
fomc | 2,001 | Mr. Chairman, could I add a comment to that? | 12 |
fomc | 2,001 | Yes. | 2 |
fomc | 2,001 | It isn't always necessary to be speaking to the press in order to be seen as visible within the District. I've done more outreach than usual since September 11th to any number of groups without appearing in the press one time. And I feel comfortable, though I know the range of uncertainty is wide, that because of that ... | 139 |
fomc | 2,001 | President Moskow. | 4 |
fomc | 2,001 | I agree with your recommendation, Mr. Chairman. I don't think today is the time to take a risk of adversely affecting business confidence. | 27 |
fomc | 2,001 | President Guynn. | 4 |
fomc | 2,001 | Mr. Chairman, I support your recommendation. | 9 |
fomc | 2,001 | Governor Kelley. | 3 |
fomc | 2,001 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 2,001 | President Broaddus. | 5 |
fomc | 2,001 | I support your recommendation. | 5 |
fomc | 2,001 | And finally, President McTeer. | 8 |
fomc | 2,001 | I support your recommendation. | 5 |
fomc | 2,001 | Thank you. Would you proceed to read the appropriate text? | 12 |
fomc | 2,001 | You'll find the wording on page 13 of 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 w... | 131 |
fomc | 2,001 | Call the roll. | 4 |
fomc | 2,001 | 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 | 40 |
fomc | 2,001 | I'd like to call a recess and request that the Board of Governors meet next door to discuss an appropriate action on the discount rate requests of the Reserve Banks. | 31 |
fomc | 2,001 | As you can see in the draft press statement we've distributed, we've adopted the Hoenig principle on these types of press releases on the grounds that the more we try to say, the more complex the issue gets and the less clear our actual message. I think that has worked well and we thank you. | 60 |
fomc | 2,001 | Oh, you're very welcome! [Laughter] | 10 |
fomc | 2,001 | In any event, this wording is very close to the previous statement made after our last meeting. I assume you've all had a chance to look at it. Does anybody have any strong objections to letting it go as it is? If not, I thank you all very much. Our next meeting is scheduled for November 6th. This meeting is adjourned ... | 93 |
fomc | 2,001 | Good morning, everyone. Would somebody like to move approval of the minutes of our October meeting? | 19 |
fomc | 2,001 | So move. | 3 |
fomc | 2,001 | Without objection. Dino. | 5 |
fomc | 2,001 | Thank you, Mr. Chairman. I will be referring to the charts that were handed out this morning. 1/ The top panel of the first page depicts U.S. and euro-area cash and forward rates. U.S. 3-month cash rates, the solid red line, declined about 1/4 percent since the last meeting, while 3-month and 9-month forward rates decl... | 2,755 |
fomc | 2,001 | Will the emergence of fails in the order of magnitude we've been seeing lately impair the market structure in any ongoing way that should concern us? | 27 |
fomc | 2,001 | I don't think so. The cash market continued to function normally. There did not seem to be a spillover into the cash market. That might have occurred if the on-the-run/off-the run spreads had widened, but we did not see that. The problem remained a back office problem that did not spill over into the front office. Of c... | 93 |
fomc | 2,001 | Yet the Treasury reopened the 10-year due to obvious concerns about-- | 14 |
fomc | 2,001 | That's right. | 3 |
fomc | 2,001 | What was the Treasury worried about other than fails? On the face of it, fails seem to be a disruption to the normal market process. If fails are benign, why does anybody really care all that much? | 42 |
fomc | 2,001 | I think it's the risk that I mentioned--that if the back office gets clogged up, then it affects how the traders behave. | 26 |
fomc | 2,001 | Has that ever happened? | 5 |
fomc | 2,001 | I can't think of an instance when it has. In 1998 we had a different situation where liquidity was an issue, and on-the-run/off-the-run spreads widened then. But I can't think of an instance where we had that kind of spillover problem because of fails. Again, that was a risk that the Treasury was contending with, and I... | 85 |
fomc | 2,001 | Historically, Mr. Chairman, the Treasury has been concerned that an environment in which investors are not sure they actually will receive the security they purchased may turn off some investors. As Dino pointed out, during the time the fails were occurring some foreign central banks were not making their securities av... | 139 |
fomc | 2,001 | I was slightly distracted, Dino, when you were explaining why it is that the Japanese banks are willing to take the lower yielding 5-year swaps rather than JGBs. Did you say it was for tax reasons? | 44 |
fomc | 2,001 | There's a preferential accounting treatment for swaps relative to JGBs; the latter go on their balance sheets. | 21 |
fomc | 2,001 | You mean in terms of their capital? | 8 |
fomc | 2,001 | In part I think for reasons related to capital. Also, a bank may be influenced by not wanting to balloon its balance sheet, which is published. The Japanese accounting authorities are looking at changing that preferential treatment because the Japanese banks are using it as a loophole. The swap is designed to be what t... | 171 |
fomc | 2,001 | I'd like to add a comment. However the accounting authorities rule, the situation is clearly one in which the Japanese banks are taking a massive interest rate risk at a time when they have enough risks in the portfolio. And this practice involves an additional risk that they should not be taking. Wearing my Basel Comm... | 78 |
fomc | 2,001 | Any negative results? | 4 |
fomc | 2,001 | No, they just continue to ignore that risk. Essentially, anything that will produce some additional earnings, however great the risk, is a risk that the banks are willing to take. And as Dino pointed out very well, if the Japanese government has to start issuing more government bonds in order to bail out the banking sy... | 89 |
fomc | 2,001 | President Poole. | 4 |
fomc | 2,001 | In looking at a whole range of spreads--on-the-run, off-the run, bid-ask spreads, and risk spreads on different kinds of paper--could you characterize the state of the markets in recent days, relative to, let's say, just before the terrorist attacks? | 55 |
fomc | 2,001 | Well, in terms of how the markets are functioning, I think they are functioning fine. In terms of how market participants are discriminating among risks, I would have no reason to second-guess the assessments they are making. They seem to be putting in a greater risk premium on high-yield assets and on debt of emerging... | 108 |
fomc | 2,001 | Right. But the spreads that would indicate how the market itself is functioning, such as bid-ask spreads, are back pretty much to where they were? | 31 |
fomc | 2,001 | I don't recall that there has been any meaningful widening of bid-ask spreads in the fixed income markets. And the on-the-run/off-the-run spread has not moved very much. So those indicators are not pointing to problems with the functioning of the markets. | 51 |
fomc | 2,001 | Okay. | 2 |
fomc | 2,001 | Further comments or questions? Mr. Vice Chair, would you make your usual motion? | 17 |
fomc | 2,001 | I move approval of the domestic operations. | 8 |
fomc | 2,001 | Without objection, they are approved. We now move on to Dave Stockton and Karen Johnson. | 18 |
fomc | 2,001 | Thank you, Mr. Chairman. In my remarks at the last meeting, I said that if we were pressed to net the various risks to our projection of real activity, we saw greater downside risks in the near term and greater upside risks further out. The data we have received over the past month seem to have supported that view. We ... | 2,482 |
fomc | 2,001 | We revised down our forecast for growth of real output abroad once again in this Greenbook. In part, we were reacting to the information received over the intermeeting period about production and spending in foreign economies. In part, we were recognizing that more pronounced weakness in the U.S. economy in the very ne... | 1,421 |
fomc | 2,001 | President Moskow. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. I have a question for David. You mentioned in your comments the possibility of weaker household spending and, of course, that was one of the alternative scenarios that you had in the Greenbook as well. The Greenbook analysis indicated that under this alternative scenario households would react ... | 127 |
fomc | 2,001 | Certainly. In our baseline forecast, we have assumed a significant hit to consumer confidence, one that is by our estimates sufficient to subtract roughly 3/4 of a percentage point from real GDP growth in 2002. So in the baseline scenario we are already expecting some additional weakness--an exogenous hit--beyond the w... | 593 |
fomc | 2,001 | In your "weaker household spending" alternative, as you look forward do you envision a more or less stable environment in terms of the terrorist threat that we're facing? | 33 |
fomc | 2,001 | That's a very good point. The answer is more stable. We have not built in escalating terrorist activities in the United States that would either significantly affect consumer confidence or add significantly further to business costs. I wouldn't even know how to begin to produce such a forecast. But certainly there are ... | 125 |
fomc | 2,001 | Thank you. | 3 |
fomc | 2,001 | President Broaddus. | 5 |
fomc | 2,001 | David, I just wanted to probe a bit more on the impact you project from the assumed passage of legislation regarding a partial expensing provision. If you're right in your projection, that won't make much of an impact until we get to the second quarter of 2002. But from then on the effect is fairly significant. The ana... | 148 |
fomc | 2,001 | We certainly did look at it at a disaggregated level. Perhaps my colleague, David Wilcox, can talk about the underlying theory of how we embedded this in the forecast in terms of its potential implications for different kinds of capital spending, in particular on shorter-lived versus longer-lived assets. Obviously this... | 169 |
fomc | 2,001 | There's not a lot to go on. We don't have clean, historical experiments. We have some elegant theory and some consensus parameters. We attempted to calibrate simulation models to values that we think are sensible and that in other circumstances produce reasonable results. But history is not replete with temporary inves... | 234 |
fomc | 2,001 | Thank you. | 3 |
fomc | 2,001 | Governor Meyer. | 3 |
fomc | 2,001 | Dave, one of your comments in your presentation surprised me a little, and that was the link that you described between capital deepening, productivity, and inflation. You emphasized the implications of a temporary investment incentive that raises investment, spurs additional capital deepening, and leads in a sense to ... | 128 |
fomc | 2,001 | I should have been clearer about that. My remark in the briefing was really referring to the revisions that we have made in the forecast, which involved a downward revision in our price forecast at the same time that we're showing a lower unemployment rate. A piece of that story was the slightly faster capital deepenin... | 217 |
fomc | 2,001 | Just to follow up on that, the slowdown in structural productivity growth is really quite significant into 2002 in particular. We became somewhat familiar with the complicated dynamics of how that plays out on demand as well as inflation when we had an acceleration in structural productivity, so this is perhaps a facto... | 69 |
fomc | 2,001 | I agree with that. We're not showing very much disinflation in the course of 2002 in part because of the unwinding of the positive productivity shock that we saw on the other side. | 40 |
fomc | 2,001 | President Parry. | 4 |
fomc | 2,001 | Dave, I have a question and also a comment about the forecast. In looking at the sources of weakness in the short term, a large portion of it comes from residential investment. It strikes me that there certainly are some positive fundamentals in this area. In September, for example, starts continued to increase. Moreov... | 161 |
fomc | 2,001 | I'd note a couple of points. One is that our projected falloff in single family starts is not dramatic; it's certainly not dramatic if one thought we were witnessing a typical recession. | 36 |
fomc | 2,001 | Eight-tenths of a percentage point of the decline in real GDP this quarter is due to residential investment, and that's a small sector. | 28 |
fomc | 2,001 | We believe our starts forecast is reasonably aligned with the decline in permits that we saw and with what we think will be some depressing effect from the weakening in income growth. And we built in some additional weakness because of the assumptions we've made about consumer sentiment. So that is one of the places wh... | 221 |
fomc | 2,001 | Do you know if there is anything special in the adjustment that goes from starts to value put in place that would be involved in this change? | 28 |
fomc | 2,001 | Well, there is a bit in the residential investment forecast because the falloff in construction put in place has been greater for homes at the high end than at the low end. So the cost per start has been falling as well and that certainly adds to that weakness. | 53 |
fomc | 2,001 | I think that's an issue. | 6 |
fomc | 2,001 | But we do still have a falloff in single-family home starts in the quarter to 1.2 million units. That is a noticeable drop. | 30 |
fomc | 2,001 | I also have a comment about the partial expensing investment tax incentive. Given that the proposal is for a three-year period, and recognizing some of the points Al Broaddus made--that the capacity utilization rate is so low and that the current economic situation is so poor and likely to remain so for a while--why wo... | 126 |
fomc | 2,001 | We certainly could have and we debated that. In the end, as I noted, more judgment than science was applied to how we spread it out. I would sound one note of caution about assuming that a provision like this won't be important by the middle of next year. When the economy starts to improve, there is a fair amount of ti... | 301 |
fomc | 2,001 | There's also the risk that the provision will be not for three years but for one or two years. | 20 |
fomc | 2,001 | Another risk, too, is that the provision could be smaller than now anticipated. This is not a very large temporary investment incentive. If the window were made shorter, we might see a more immediate effect. Or if the amount that can be expensed were less-along the lines of the 10 or 15 percent people have talked about... | 173 |
fomc | 2,001 | Have we gotten any greater visibility about what is likely to happen in terms of Congressional action on this? | 20 |
fomc | 2,001 | All I know is what I read in the newspapers, and that has not been terribly encouraging. Yet this would be the time when we might in fact not expect to hear much encouraging news, as parties on both sides position themselves for the hard negotiations that, at least in our view, will probably need to take place in the n... | 70 |
fomc | 2,001 | I'd like to underscore two points that Dave made earlier. First, what we have built into the Greenbook projection is not a straight read of our model simulation. We did very substantially push back the investment response to the tax incentive precisely on the theory that businesses might plausibly respond to the height... | 167 |
fomc | 2,001 | That incentive is for a period of months versus three years. | 12 |
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