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fomc | 2,001 | Mr. Chairman, economic activity in the Tenth District is likely to be lower again in this quarter. The manufacturing sector remains in a slump and labor markets are soft. However, the consumer sector shows signs of having turned a corner. In our opinion, housing, consumer spending, and auto sales are pointing up. We in... | 876 |
fomc | 2,001 | President Guynn. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. While overall business conditions in the Southeast remain weak, we're beginning to get hints of at least some marginal improvement in the consumer and related sectors. Retailers in our area indicate that Thanksgiving holiday sales met or exceeded their lowered expectations. This is largely cons... | 1,405 |
fomc | 2,001 | President Minehan. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. The New England economy slowed further since our last meeting and remains largely in sync with national trends. That is, the nation is now officially in a recession and so by extension is New England. Payroll employment for the region declined in October and job levels in every state are below ... | 1,932 |
fomc | 2,001 | President Broaddus. | 5 |
fomc | 2,001 | I don't have a whole lot to say about our District economy that is new. Overall activity seems to have continued to decline in November. In particular, retail activity in our region fell sharply in November, based on information we received in the monthly survey we conduct. Much of the decline seems to be the result of... | 1,091 |
fomc | 2,001 | President Stern. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. I'm not sure I have a lot to add at this point, so let me be brief. I've reported for a long time now that the District economy has been tracking the national economy rather closely. As a generalization that still is the case, but let me make a few comments about things that are a little differ... | 743 |
fomc | 2,001 | President Santomero. | 5 |
fomc | 2,001 | Thank you, Mr. Chairman. Underlying economic conditions in the Third District have remained essentially flat since our meeting five weeks ago, suggesting that the economy has once again stabilized. This is an improvement relative to the conditions I reported here at the November meeting, when the District's economic si... | 999 |
fomc | 2,001 | President Jordan. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. First, I'm surprised by Al Broaddus's negative tone on the labor report because I really expected him to come in here and note that West Virginia, which is more in his District than in mine, had its lowest unemployment rate in the history of the data series. | 61 |
fomc | 2,001 | I started to do that but in light of the reaction to what I said about West Virginia last night, I thought that might not be wise. [Laughter] | 33 |
fomc | 2,001 | And about nine other states registered drops in their unemployment rates. Our region enjoyed spring-like weather last week, setting a record high of over 70 degrees on one day. So even the shutdown of LTV steel production did little to reverse the gradually building optimism. The range of opinion of people we talked wi... | 1,474 |
fomc | 2,001 | Okay. Let's break for coffee, which I presume is outside. | 13 |
fomc | 2,001 | President Poole. | 4 |
fomc | 2,001 | I will try to fill in a few interstices of the discussion without repeating what is already before us. My Wal-Mart contact said a couple of things that I thought were very interesting. He said that when Wal-Mart compares prices of items being sold this holiday season that were also sold last holiday season, the prices ... | 384 |
fomc | 2,001 | I won't do it again, I promise! | 9 |
fomc | 2,001 | That's okay. I'm from Chicago and I believe in competitive markets, [laughter] including for information. The overall tone at UPS seemed to be a little more bullish than at FedEx. My contact said business has been fairly good and UPS is anticipating that volume in the beginning of next year will be up by 2.2 percent--t... | 500 |
fomc | 2,001 | Governor Gramlich. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. For some months now the economic statistics have been very negative. All year the Greenbook has been responding to these statistics by revising down its forecast, as have the Blue Chip and other forecasters. But we now find ourselves in a more ambiguous situation. Some indicators still look wea... | 634 |
fomc | 2,001 | Vice Chair. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. The Second District's economy has shown clear signs of rebounding from the depressed levels noted in my report to you at the last meeting, and there are further signs of downward price pressure. Consumer spending in the District seems to have rebounded in November but remains below pre-attack l... | 821 |
fomc | 2,001 | Governor Ferguson. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. The conversation thus far has indicated that it is extraordinarily difficult to identify with great certainty turning points in the economic cycle. A number of people have already pointed to some of the positives that emerged in the intermeeting period, including retail sales, new orders of dur... | 765 |
fomc | 2,001 | Governor Meyer. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. Recently at FOMC meetings, one of the key issues that has weighed on the policy decision is whether or not the forecast is stabilizing. In fact, as Governor Ferguson just noted, in each of the previous FOMC meetings this year there has been some meaningful downward revision in the Greenbook for... | 1,218 |
fomc | 2,001 | Governor Bies. | 4 |
fomc | 2,001 | Well, given my long tenure of a long weekend and a day to look at this information, I won't pretend to be as up-to-date on many of the series as the experts around the table. But I wanted to bring to the table some observations I've noted, which are more from an anecdotal perspective of the business community and the b... | 461 |
fomc | 2,001 | Governor Olson. | 3 |
fomc | 2,001 | First, I'd like to associate myself with Governor Bies's preamble. I share the same view. I would like to make one observation on the subject of fiscal policy and the stimulus package, which has been discussed by a number of people. I do so from the standpoint of having spent much of the last 30 years being very closel... | 318 |
fomc | 2,001 | We move on to Don Kohn. | 8 |
fomc | 2,001 | Thank you, Mr. Chairman. As many of you have remarked, perhaps the most striking--and certainly welcome--aspect of this intermeeting period has been the mixed character of the incoming economic data. For the first time in many months, data have not pointed to further downward revisions to current and prospective econom... | 1,953 |
fomc | 2,001 | I have a couple of questions about this "perfect foresight" model. It's an ideal way to make monetary policy, if we have a perfect foresight or even some foresight! [Laughter] I'm just curious about it from a technical standpoint. With reference to the model, there's a sentence in the Bluebook that says, "The policymak... | 178 |
fomc | 2,001 | If you didn't have it there you would have some much sharper declines in interest rates. It's a tradeoff. By putting in that constraint you are deviating from the optimum possible economic performance. | 38 |
fomc | 2,001 | I understand that. Why do we want to? If in fact you're getting the sort of result that you find distasteful, are you not suggesting that the model may be at fault, rather than the assumptions? | 43 |
fomc | 2,001 | For one thing, if that constraint weren't there we would be dealing with a zero bound situation, given the staff forecast. That's not a reason not to show it. | 33 |
fomc | 2,001 | I think we all know what's happening here. Let me see if I can rephrase my question in defense of my position that the constraint undercuts part of the point of this exercise. You have a set of fixed coefficients here. In any econometric model there is a rigidity that probably does not exist in the real world, and ther... | 100 |
fomc | 2,001 | This experiment requires in essence the specification of the policymaker's preference function. If you're telling us that you really don't care about fluctuations in interest rates, then this isn't the optimal or perfect foresight policy for you. The reason that in some sense the constraint is in there for this particu... | 115 |
fomc | 2,001 | I think the issue is not about our feelings or our tastes; this is a question of fact. If you have a perfect foresight model that is wholly deterministic, then any action you take should exactly replicate what is going to happen in the real world. That's the presumption. But if you are putting additional constraints in... | 152 |
fomc | 2,001 | There are two aspects to what you said. The first is, yes, the model represents an average behavior over the historical period that was estimated. That by itself smoothes the reaction of households and businesses to changes in financial market prices. It smoothes the reaction in financial market prices to changes in be... | 264 |
fomc | 2,001 | I don't want to pursue this at length here, but I do want to determine precisely what you're suggesting. It involves a very complex mathematical solution. You just can't say that smoothing creates this result and that the constraints that you're imposing with respect to the exercise, including equal taste-- | 55 |
fomc | 2,001 | Distaste. | 3 |
fomc | 2,001 | Equal distaste. | 4 |
fomc | 2,001 | It's equal distaste; that is the better term, which is a mathematical term. The problem is that it's a very useful concept if only we could apply it! And I'm just trying to ferret that out, which gets me to the real question I wanted to ask. Granted that the presumptions with respect to policy are what you stipulate, n... | 209 |
fomc | 2,001 | The model used for this is the same model used in the alternative simulations in the Greenbook. | 19 |
fomc | 2,001 | I assumed that, right. | 6 |
fomc | 2,001 | So you do get a sense of how sensitive the economic outcomes are to different policy assumptions. For example, the fiscal policy assumption that Governor Gramlich mentioned produces a somewhat different outcome for the economy, and that would feed back through the policy path. And importantly, because this is a perfect... | 88 |
fomc | 2,001 | That's the reason why I'm raising it. | 8 |
fomc | 2,001 | The Committee is assumed to choose a whole path for the federal funds rate that minimizes the squared deviations of the output and inflation gaps at every point in time, taking account of all the information you have way out into the future. | 45 |
fomc | 2,001 | Yes. The reason I'm raising these issues is that I think this is a very interesting, original addition to the various vehicles that we're employing in making monetary policy. And despite the presumption, which is obviously factually true, that all we ever set is the funds rate for the next 15 minutes, there is nonethel... | 180 |
fomc | 2,001 | Just to underscore what Don said in terms of the robustness of alternatives, it really depends on the duration of the other alternatives. Some of the types of shocks in the Greenbook alternatives, which are relatively temporary, don't perturb this path all that much. But one can imagine other types of shocks, including... | 143 |
fomc | 2,001 | But the optimum long-term inflation goal should be determined by the model if you believe the model. There is a level of inflation that maximizes long-term economic goals. It shouldn't be an input to the model. President Poole. | 46 |
fomc | 2,001 | I have a different subject to raise. | 8 |
fomc | 2,001 | Okay, go ahead. | 5 |
fomc | 2,001 | A very quick question: On page 8 of the Bluebook there is a statement to the effect that investors currently believe that our decision at this meeting will include a balance of risks weighted toward weakness. Is that conclusion from talking with people, from surveys, or is it extracted from the fed funds futures market... | 65 |
fomc | 2,001 | It's from several surveys that show a universal expectation among economists and market observers about the balance of risks. You can't infer anything about the balance of risks from financial prices per se. So it is survey based. | 41 |
fomc | 2,001 | One, for instance, is the Money Market Services survey. In last Friday's survey, twenty out of twenty respondents said the balance of risks would be tilted toward weakness. For the January meeting it was three out of twenty who thought it would go back to the neutral. By the time you get to their expectations for the M... | 77 |
fomc | 2,001 | Don, let me see if I can ask a question on interest rate volatility. I observed that after we moved the last time, futures funds rates actually went up. | 33 |
fomc | 2,001 | I think the immediate reaction to our move was that the Eurodollar futures rates went down by 10 to 15 basis points. | 27 |
fomc | 2,001 | Right. | 2 |
fomc | 2,001 | And then there was the new information-- | 8 |
fomc | 2,001 | New information that brought it up, okay. But they are now higher. Secondly, assuming that we have an easy policy now and also assuming that if we have an easy policy, it would be better to have less volatility in interest rates than more volatility, are we not risking, by moving the funds rate down, increasing the vol... | 70 |
fomc | 2,001 | I think if you move down and then up, in some definitional sense that increases the volatility of interest rates over the period of time. But I don't think it necessarily would increase the volatility of interest rates in the short run because moving down now is exactly what the market expects. In some sense not moving... | 145 |
fomc | 2,001 | Raise them more than you otherwise would. | 8 |
fomc | 2,001 | More than you otherwise would. | 6 |
fomc | 2,001 | Further questions for Don? If not, let me get started. Prior to September 11, I think there was clear evidence of stabilization in some sectors of the economy. That pattern was broken decisively on September 11. Not only did the quite intense forces that were causing deflation in asset prices and economic activity prio... | 3,082 |
fomc | 2,001 | I concur with your recommendation, Mr. Chairman. | 10 |
fomc | 2,001 | President Poole. | 4 |
fomc | 2,001 | Mr. Chairman, I support your recommendation but I do want to express a little uneasiness about the balance of risks statement. Let me explain. I ask myself the question: What difference does that sentence make? It's clear that the downward move of 25 basis points is built into the markets. And in my view long-term rate... | 284 |
fomc | 2,001 | I agree with that and I think there are two ways to handle that problem. One is in the balance of risks statement and the other is in the full press statement that we make. I would much prefer to put something in the full statement itself that recognizes that the situation has changed from an unmitigated set of negativ... | 164 |
fomc | 2,001 | Mr. Chairman, the reduced size of the rate decrease, from 50 basis points several times in succession to 25 basis points, will in and of itself send the kind of signal that I think we're looking for. That's part of the message that comes from reducing the size of the cut. | 59 |
fomc | 2,001 | President Parry. | 4 |
fomc | 2,001 | Mr. Chairman, it seems fairly likely to me that economic recovery would occur next year without any further easing of monetary policy. However, that outcome is vulnerable to a number of negative shocks that could hit the economy at any time. With inflation well in hand and Federal Reserve credibility in good shape, I b... | 109 |
fomc | 2,001 | Governor Ferguson. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. I support your recommendation and would like to associate myself with President Parry's view. The reason I support it is in large part because of the uncertainty about how to interpret the incoming data and the outlook. In those circumstances, as he suggested, insurance is probably a good thing... | 65 |
fomc | 2,001 | President Broaddus. | 5 |
fomc | 2,001 | Mr. Chairman, let me make a couple of comments that may make your recommendation look a little more moderate and restrained. [Laughter] There are certainly some differences in the situation we face today from the one we were looking at when we met last month. But I think there are a lot of similarities as well. At the ... | 577 |
fomc | 2,001 | President Moskow. | 4 |
fomc | 2,001 | Mr. Chairman, I agree with the recommendation for a 25 basis point reduction in the rate. In my view it's appropriate this time because I think it will help to underpin the consumer while the inventory cycle completes itself and corporate profits and capital spending slowly return to more normal levels. I also believe ... | 125 |
fomc | 2,001 | President Stern. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. I would prefer to leave policy unchanged today. Let me quickly sketch out the elements of my reasoning. Part of it I touched on earlier. I do think that the story in the mainstream Greenbook forecast is a reasonably convincing one and I'm certainly more confident about the outlook than I have b... | 336 |
fomc | 2,001 | Governor Meyer. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. I support your recommendation. While I support a statement of unbalanced risks toward weakness, I also believe that the Committee should avoid encouraging an expectation of further easing at the next meeting. Given my recent experience in communicating with the markets, I'm not giving any advic... | 1,326 |
fomc | 2,001 | We will obviously be considering your notions and I'll appoint two or three people to be the proxy for you. It's going to require two or three people to do that! [Laughter] In any case, I'm sure that in the weeks ahead there will be a lot of statements about your contributions to this Committee. But I doubt that any of... | 95 |
fomc | 2,001 | I didn't necessarily want to follow in this order! Let me first say a word to my good friend, Larry Meyer. I don't always agree with him, but he always makes us think. And I believe he has done that today. I'm frankly a little too tired to think about disclosure and transparency at this particular moment, but I agree t... | 337 |
fomc | 2,001 | President Minehan. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. Hopefully we don't all have to comment on transparency because I'm not going to! I am in agreement with your recommendation. Given the hard time I had with the 50 basis point reduction last time, some might ask how I could be and, frankly, on the case for standing pat I think President Stern ha... | 270 |
fomc | 2,001 | President Guynn. | 4 |
fomc | 2,001 | Mr. Chairman, I can accept your recommendation, but I have a preference for no change at today's meeting. I would like to associate myself with President Stern's comments. It seems to me that after eleven months of very aggressive front-loaded easing and having been in an accommodative stance for some time now--the deg... | 270 |
fomc | 2,001 | President Santomero. | 5 |
fomc | 2,001 | I support your recommendation, Mr. Chairman. The recovery appears to be on track or at least visible in the distance. As you point out, the timing and magnitude of the recovery depend on consumer spending, which is still uncertain. And to counter the risk associated with that, I support further easing. I also support l... | 103 |
fomc | 2,001 | I'm glad it's short! [Laughter] President Jordan. | 12 |
fomc | 2,001 | I agree with the views stated by Gary Stern. | 10 |
fomc | 2,001 | President Hoenig. | 4 |
fomc | 2,001 | Mr. Chairman, I really think we ought to stay where we are. A 2 percent fed funds rate is stimulative. We've cut the rate 450 basis points this year, which is very aggressive for us, and 150 basis points of that has been done since September 11th. We are seeing some signs of improvement and not all of the stimulus has ... | 125 |
fomc | 2,001 | President McTeer. | 5 |
fomc | 2,001 | I can support your recommendation, although I'd like to associate myself with the comments of Gary, Jerry, Jack, and Tom. I think this would have been a good time to pause and no real harm would have come from it. It seems to me that it would be a good time to signal to the markets that they can't get a cut every time ... | 200 |
fomc | 2,001 | I might note that in fact that issue did come up and the general consensus, at least among the staff, is that it probably would create more uncertainty than otherwise. But it's an interesting idea. | 39 |
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