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fomc | 2,001 | Well, I've suggested it at the last two meetings as well. | 13 |
fomc | 2,001 | I'm aware of that. | 5 |
fomc | 2,001 | It seems to me that our long-run plan is to reverse the positioning of those two rates and that we're missing a good opportunity to get a head start on doing that. | 34 |
fomc | 2,001 | Governor Bies. | 4 |
fomc | 2,001 | I support the recommendation, but I do also support the comments that other people have made about beginning to signal that this may be one of our last easing actions. | 32 |
fomc | 2,001 | Governor Olson. | 3 |
fomc | 2,001 | I support the recommendation. | 5 |
fomc | 2,001 | Will you read the directive wording? | 7 |
fomc | 2,001 | The directive wording is on page 14 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 consist... | 133 |
fomc | 2,001 | Call the roll. | 4 |
fomc | 2,001 | Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Bies Yes Governor Ferguson Yes Governor Gramlich Yes President Hoenig No Governor Meyer Yes President Minehan Yes President Moskow Yes Governor Olson Yes President Poole Yes | 44 |
fomc | 2,001 | I'd like to ask that this Committee go into recess and that the Board of Governors congregate next door where we will address the issue of discount rate requests by the Reserve Banks. I hope that while we are doing that, the preliminary statement will be distributed to everybody. [Recess] | 57 |
fomc | 2,001 | The FOMC meeting is now back in session. The Board of Governors, much to everybody's surprise, voted as was contemplated in the first paragraph of the draft press release. Has everyone had a chance to read that statement? Are there comments or suggested alterations? | 53 |
fomc | 2,001 | The statement captures it just fine. It's good. | 10 |
fomc | 2,001 | I tried to capture what I thought would be the center of the Committee's views. If there are no objections, we will consider this the statement of the Committee. I'd like to remind you all that our next meeting is a multiple-day meeting, to be held on Tuesday and Wednesday, January 29th and 30th. We can go to lunch. We... | 91 |
fomc | 2,002 | Good morning, everyone. To begin today's meeting let me turn the floor over to Governor Ferguson for the election of the Chairman and Vice Chairman of the Committee. | 31 |
fomc | 2,002 | Is there a nomination for Chairman of the FOMC? | 12 |
fomc | 2,002 | I nominate Alan Greenspan to serve as Chairman of the Committee. | 13 |
fomc | 2,002 | Second. | 2 |
fomc | 2,002 | All in favor say "aye." SEVERAL. Aye. | 14 |
fomc | 2,002 | Approved without objection. Is there a nomination for someone to serve as Vice Chairman of the FOMC? | 21 |
fomc | 2,002 | I nominate William J. McDonough of the New York Federal Reserve Bank for Vice Chairman. | 19 |
fomc | 2,002 | Okay. Is there a second? | 7 |
fomc | 2,002 | Second. | 2 |
fomc | 2,002 | All in favor say "aye." SEVERAL. Aye. | 14 |
fomc | 2,002 | Gentlemen, democracy has ruled yet again. Let me turn the floor over to the person who should actually run the meeting, our re-elected Chairman. | 32 |
fomc | 2,002 | Thank you. Should I make an inaugural speech? | 10 |
fomc | 2,002 | If you feel so obliged! | 6 |
fomc | 2,002 | The first item of business is to elect the staff officers of the Committee. Norm has a list of nominees, and I would appreciate his reading them. | 30 |
fomc | 2,002 | Secretary and Economist Donald Kohn Deputy Secretary Normand Bernard Assistant Secretary Gary Gillum Assistant Secretary Michelle Smith General Counsel Virgil Mattingly Deputy General Counsel Thomas Baxter Economist Karen Johnson Economist Vincent Reinhart Economist David Stockton Associate Economists from the Board Th... | 85 |
fomc | 2,002 | Would somebody like to move that slate? | 8 |
fomc | 2,002 | I'll move the slate. | 5 |
fomc | 2,002 | Without objection. Next, as you know, we need to select a Federal Reserve Bank to execute transactions for the System Open Market Account. I believe the New York Bank traditionally has been the one selected. Would somebody like to move that we continue that particular historical practice? | 53 |
fomc | 2,002 | I'll move New York. | 5 |
fomc | 2,002 | Thank you. Is there a second? SEVERAL. Second. | 14 |
fomc | 2,002 | Good. I assume that there are no objections. If there are, tell me later! [Laughter] | 22 |
fomc | 2,002 | We are prepared to serve, Mr. Chairman. | 10 |
fomc | 2,002 | I don't recall asking you any questions, Mr. Vice Chairman. [Laughter] The Manager of the System Open Market Account is currently Dino Kos. I would entertain a nomination for him to continue to serve in that position, subject to his appointment being satisfactory to the Federal Reserve Bank of New York. | 60 |
fomc | 2,002 | So move. | 3 |
fomc | 2,002 | Without objection. Congratulations, Dino. I will now turn the floor over to Dino for a discussion, if necessary, of the authorizations and directives that we need to approve. | 35 |
fomc | 2,002 | Thank you. First, on the domestic side, we recommend that the Committee reaffirm the Authorization for Domestic Open Market Operations and the Guidelines for the Conduct of System Operations in Federal Agency Issues in their present forms. I would note with regard to the "Guidelines" that a reaffirmation would involve ... | 100 |
fomc | 2,002 | Would somebody like to move that? | 7 |
fomc | 2,002 | Move approval. | 3 |
fomc | 2,002 | Without objection. You still have the floor, Dino. | 11 |
fomc | 2,002 | On the foreign side, the Desk operates under the following Committee instruments: the Authorization for Foreign Currency Operations, the Foreign Currency Directive, and the Procedural Instructions with Respect to Foreign Currency Operations. I recommend that they all be renewed without amendment. | 48 |
fomc | 2,002 | Before we go into a discussion on that, let me note that I have recently had conversations with the Secretary of the Treasury in which he reiterated the Treasury's position with regard to foreign currency intervention. It is about as close to ours as you can get. The general view at Treasury is that the history of inte... | 176 |
fomc | 2,002 | Mr. Chairman, especially with that background, I enthusiastically move approval. | 15 |
fomc | 2,002 | Is there a second? | 5 |
fomc | 2,002 | I second it. | 4 |
fomc | 2,002 | Any discussion? | 3 |
fomc | 2,002 | I would like to make a comment on this. I am, of course, very pleased to hear that the prospects of intervention are very low. It does seem to me, though, that sometimes conditions change and under the press of circumstances people do things that one wouldn't have anticipated. I think back particularly to the most dram... | 178 |
fomc | 2,002 | I would oppose our taking such a measure, first because I don't think it is necessary. Indeed, I'm sure it is not necessary. But more importantly, if we did--and of course we'd make it public of necessity--we would raise questions that I don't think this particular Secretary of the Treasury and this Treasury Department... | 182 |
fomc | 2,002 | A question. Quite aside from intervening in the narrow and short-run sense, have your conversations gotten into issues of long-term considerations about the appropriate level of our holdings of securities denominated in foreign currencies? We hold securities in two currencies right now, and we got it down to those two ... | 98 |
fomc | 2,002 | No, I think the Treasury would agree with that. Their conclusion, however, is that the best thing to do is to leave it alone. From their point of view we should not do anything one way or the other on the grounds that, if we start to do something in that regard, it implies that we're open to other types of manipulation... | 141 |
fomc | 2,002 | I already made it. | 5 |
fomc | 2,002 | Sorry about that. You did, indeed. | 9 |
fomc | 2,002 | Second. | 2 |
fomc | 2,002 | It has been seconded. All in favor say "aye." SEVERAL. "Aye." | 21 |
fomc | 2,002 | Opposed? The "ayes" have it. Would somebody like to move the minutes of our meeting of December 11? | 25 |
fomc | 2,002 | Move approval. | 3 |
fomc | 2,002 | Thank you. Without objection, they are approved. Dino Kos, you have the floor again on open market operations. | 23 |
fomc | 2,002 | 1 Thank you, Mr. Chairman. I'll be referring to the charts that were circulated earlier this afternoon. The top panel of the first page shows three-month cash and forward dollar deposit rates, represented by the red lines. Those rates moved in a relatively narrow range during most of the intermeeting period. They did f... | 1,450 |
fomc | 2,002 | Questions for Dino? If not, Vice Chair. | 10 |
fomc | 2,002 | Move approval of domestic operations. | 6 |
fomc | 2,002 | Thank you. Without objection, they are approved. We now move on to what hopefully is going to be a rather interesting conversation and I trust an academic one, but we never know about these things. It is, of course, a presentation on the zero-bound issue with three briefers, sequentially: Dave Reifschneider, John Willi... | 85 |
fomc | 2,002 | 2 Thank you, Mr. Chairman. John and I will be sharing our briefing this morning, and we will be referring to the material that was handed out earlier entitled "Board Staff Presentation on the Implications of the Zero Bound on Nominal Interest Rates." This afternoon, we will report on work that we have undertaken in the... | 1,901 |
fomc | 2,002 | Under the Taylor rule, policymakers would need to weigh the deterioration in economic performance associated with the zero bound against the benefits of lower inflation in establishing an overall price objective. And to be sure, not all of those benefits are captured by the model. The existence of a tradeoff raises the... | 1,734 |
fomc | 2,002 | Do you want to proceed with the next presentation, or would you prefer to take questions on this first part? | 22 |
fomc | 2,002 | I would recommend, Mr. Chairman, that Marvin complete his presentation and then we can address questions. | 20 |
fomc | 2,002 | Okay. Marvin. | 4 |
fomc | 2,002 | 3 Thank you, Mr. Chairman. I recognize that thinking about what monetary policy can do at the zero bound on nominal interest rates is a kind of third rail of monetary policy. As is the case with social security, the various proposals of possible alternatives provoke strong reactions, reactions that are reminiscent of t... | 3,497 |
fomc | 2,002 | That was a very interesting and perceptive set of papers. Let me start off with some questions. You indicated that the results of your model--and, indeed, implicitly the results of Marvin Goodfriend's model--are peculiar to the individual model in the sense that the structure of the model obviously determines the outco... | 523 |
fomc | 2,002 | One of the unnerving things about working on this is exactly the problem that you pointed to at first, which is that we have models that were fit over a period where we didn't hit the zero bound at any point in time. Now we're running simulations in which we drive the nominal fed funds rate into a region where there's ... | 678 |
fomc | 2,002 | One point that Dave raised that is crucial in thinking about model-based analysis is that we are using an estimated model on thirty-five years of data during which we have not seen a period when the zero bound was a constraint. Nonlinearities may pop up during recessions for short periods of time but are not a dominant... | 222 |
fomc | 2,002 | In a way, my discussion had an advantage in that I didn't have a model. [Laughter] | 21 |
fomc | 2,002 | You have double-entry bookkeeping, which is better than some of the accounting practices we've heard about recently! [Laughter] | 24 |
fomc | 2,002 | I will say that the discontinuity--though I didn't use that word--worried me. There were a number of possible discontinuities that worried me, such as banking system distress or fiscal interventions--things that don't usually happen but that occur at the zero bound. That's why I was focusing on mechanisms that could ge... | 134 |
fomc | 2,002 | President Parry. | 4 |
fomc | 2,002 | Thank you, Mr. Chairman. I also think that these papers are excellent, including the paper on "Lessons from Japan's Experience." I'd like to ask a question. Marvin, on your quantitative policy at the zero-bound alternative, it's interesting to me to think of it in the context of Japan's experience. Suppose the performa... | 211 |
fomc | 2,002 | Yes, Japan has gone so far down the road that, you're right, it's very hard to imagine that it could dig itself out with quantitative policy. But I'll say this. As I was working on this, I was motivated by the current situation in Japan. I think there are a number of points of contact where I could see what I've been t... | 489 |
fomc | 2,002 | Vice Chair. | 3 |
fomc | 2,002 | Mr. Chairman, like everybody else, I found these studies to be enormously interesting and very beneficial to my own thinking. I do think that we have a problem, as you suggested, in that we don't have any episodes over the last thirty-five years with which to compare this. So we look at the Great Depression or we look ... | 1,041 |
fomc | 2,002 | I think I agree--I'll speak for myself and John can chime in--with everything you said. One point we deliberately didn't emphasize in our presentation is that following the generally more aggressive rule produces behavior for the last year that looks remarkably like the decline in the fed funds rate that actually occur... | 345 |
fomc | 2,002 | I'm a little confused about one thing. I could see that reflation would be beneficial if there had been a prior deflation. But are you arguing that even if there were no prior deflation you would want to set up expectations of inflation as a way to help us out of a zero-bound situation? I might disagree in that second ... | 69 |
fomc | 2,002 | To be clear on the analysis that we did in our paper and that we talked about here today, running at that higher inflation rate was really just to repair the damage that had occurred because of the zero bound. So whether or not we had inflation or deflation didn't determine what we did. If inflation were below where yo... | 110 |
fomc | 2,002 | President Poole. | 4 |
fomc | 2,002 | I want to note first of all, without going into any detail about the lessons we may or may not have learned from Japan, that the relevance of the Japanese experience for so-called quantitative policy is clear because it hasn't been tried. Japanese money growth, as I understand it, never exceeded 4 percent in the past d... | 1,015 |
fomc | 2,002 | The very definition of an interest rate presupposes property rights. | 13 |
fomc | 2,002 | Exactly. One has to be able to count on contracts being fulfilled on both sides of the transaction, and that assurance is gone in Argentina. Now, as a practical matter, in extreme circumstances something along those lines also would begin to happen in the United States. In fact, something of that sort did start to happ... | 285 |
fomc | 2,002 | I'd like to respond to a couple of comments you made regarding how the model was simulated, just so I can clarify a few points. | 27 |
fomc | 2,002 | I was raising questions more than making assertions. | 9 |
fomc | 2,002 | With regard to the assumption of rational expectations, what we did in the paper and in what we reported today was to assume rational expectations, meaning that the expectations people form are those of the model. We also assumed that fiscal policy comes in aggressively after five years to stop a "great depression" fro... | 202 |
fomc | 2,002 | What happens to the inflation rate five years out? | 10 |
fomc | 2,002 | The expectations are still rational in the sense that, if we had deflation for five years, say, the inflation rate would start coming back to zero gradually depending on the quantity dynamics. It wouldn't jump to zero, but it would come back gradually. | 50 |
fomc | 2,002 | So a ten-year bond would be pricing in a deflation rate of 5 percent five years out, but it would also be pricing in an inflation rate that would be back to zero ten years out. | 41 |
fomc | 2,002 | Right, and that would depend on whatever your target was. So with regard to what happens in the "great depression" scenarios, it's clear that our FRB/US model breaks down under conditions such as a 25 percent unemployment rate. Again, with fiscal policy coming in, the rescue package avoids these situations generally. O... | 232 |
fomc | 2,002 | May I ask one other question about investment behavior in the model under these circumstances? I remember, and you may, too, if you ever read the macro textbook written by Martin Bailey of the University of Chicago--not the Martin N. Baily who was recently on the CEA--a very striking chapter in which he was trying to a... | 478 |
fomc | 2,002 | That's why that never actually occurs in a simulation. While you could be driving down expected long-run rates on a riskless security close to zero, for private investment these endogenous risk premiums are going up because the health of the economy is not good in that state of the world. So I think in principle, if yo... | 125 |
fomc | 2,002 | Right--although let's look at the Japanese case. Clearly, if Japan had moved earlier and more aggressively to drive long-term government rates down to zero, that would have produced, at least in the short run--because all those risk premiums were already there--a decline of the private rates as well, presumably basis p... | 67 |
fomc | 2,002 | It might even have been more than one-for-one because the expected default risks might have been dropping under those conditions. | 23 |
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