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fomc
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I'm leaving space between you and Bill Poole! [Laughter] Go ahead, Bill.
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I won't get into that topic! The sense I have from our directors and also from some commercial real estate folks who recently attended a luncheon at the Bank is that they don't see a strong surge in hand, but there is a tone of more optimism. My Wal-Mart contact says that it's a little hard for the company to figure ou...
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President Parry.
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Mr. Chairman, our contacts indicate that economic conditions in the Twelfth District are improving, although areas of weakness remain that could restrain the pace of recovery. District contacts report a pickup in economic activity over the past several weeks, and job growth has turned positive in most states. The turna...
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President Moskow.
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Thank you, Mr. Chairman. The reports that we're now receiving indicate that the Seventh District economy is most likely in the early stages of recovery. Manufacturing in the District is showing clear signs of a turnaround. Our Midwest manufacturing index was up in January, with gains in three of the four subsectors we ...
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President Stern.
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Thank you, Mr. Chairman. While the news on the District economy is still somewhat mixed, I would have to say that in general it has been on the positive side, perhaps surprisingly positive. Hiring has resumed. Activity in the manufacturing sector has stabilized and begun to expand. Mining activity on the iron range in ...
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President McTeer.
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Mr. Chairman, at the last meeting I reported on Texas billboards, and I wish Jerry Jordan had alerted me that he was going to raise the issue of Texas bumper stickers today. One of my favorites is good advice for the FOMC. It says: "Be alert. Texas needs more lerts." [Laughter]
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I like that.
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Don't laugh. It just encourages him! [Laughter]
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We know that the future keeps changing, but so does the past. The BLS has lopped 215,000 jobs off the estimate for Texas for the end of December, and that revision converted what we thought was an employment gain of 1 percent into an employment reduction of 1 percent. If I'm not mistaken, it changed the Dallas area fro...
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President Minehan.
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Thank you, Mr. Chairman. As I look over the incoming data on the New England economy and consider the views expressed at various meetings I've attended in the period since the FOMC last met--meetings of our various advisory councils, our board of directors, and a variety of community groups of which I'm a member--I'm s...
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President Hoenig.
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Thank you, Mr. Chairman. In looking at economic activity in the Tenth District, we have to separate out Colorado a bit from the rest of the region. Excluding Colorado, we are seeing fairly good signs of a turnaround. Layoff announcements have subsided, consumers continue to spend, and housing activity is solid. Moreove...
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Coffee is available, and I think we can take a break. When we return we will resume with President Broaddus.
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President Broaddus.
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Thank you, Mr. Chairman. Conditions have definitely improved in our District since the last meeting, as seems to be the case elsewhere around the country. Business people in our region are more optimistic than they were, but I would say that at this point their optimism is still rather cautious, along the lines of the ...
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President Guynn.
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Mr. Chairman, business conditions have also improved in the Sixth District since our last meeting. Indications are that the pace of economic activity is increasing despite the fact that conditions in some industries and some regions are still quite weak. The District's single-family housing market remains strong, fuele...
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President Santomero.
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Thank you, Mr. Chairman. I reported at our last meeting at the end of January that the foundation for recovery was in place in the Third District. I now believe that such a recovery is under way. District economic conditions have improved over the past two months. The manufacturing and retail sectors have strengthened,...
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Governor Olson.
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Let me add a couple of thoughts to what has been said thus far. We've talked a bit about the seeming disparity between the attitude of business leaders and the direction of the economy. I spent a good part of the '90s doing strategic planning and identifying corporate goals, and one of the interesting changes that took...
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Vice Chair.
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Thank you, Mr. Chairman. The Second District's economy has shown further signs of improvement in recent weeks. Retail sales were reported to be above plan in February, rebounding from a lull in January. Consumer confidence picked up noticeably in metropolitan New York City; there's a much better feel to the community. ...
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Governor Ferguson.
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Thank you, Mr. Chairman. The phrase "March madness" normally refers to basketball but, as we can tell from the staff's introductory statements, March madness this year describes the frustration in the forecasting community as they deal with the changing incoming data. And I'm extremely sympathetic to that. I was one of...
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Governor Gramlich.
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Thank you, Mr. Chairman. There's a sense in which turning points present the biggest challenge to monetary policy. When economic activity was strong as in 1999 or weak as in 2001, the required direction of policy was clear. The balance of risks was clear, and market expectations were clear. When policy has to turn cour...
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Finally, Governor Bies.
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Thank you, Mr. Chairman. The information we've all seen since the last meeting indicates that the recovery is here. In fact, I question whether the word "recovery" is appropriate for the events we've been through and whether we really did have a recession. It clearly has been shallow and not a "V" or a "U." I think its...
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Thank you very much. Mr. Reinhart.
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2 Thank you, Mr. Chairman. I'll be referring to the materials that Carol Low distributed during the coffee break. The resilience of household spending, the signs of stirring of investment, and the significant slowing of the inventory run-off that have become evident in the past seven weeks would seem to reinforce the j...
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Questions for Mr. Reinhart? President Parry.
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Vince, this exercise is very interesting. If you were to show me the bottom two charts of exhibit 3, I think I would talk a long time about the attractiveness of the blue line, particularly relating it to some of the studies we've had in previous meetings about the zero bound. I'm troubled, though, that that outcome oc...
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I think part of the answer, President Parry, is that it is beyond the ability of our model to differentiate between the FOMC's starting to tighten a quarter or a half year from now and four quarters from now. Given the artificiality of the exercise I've done, it may very well be the case that one would expect a much di...
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Very interesting. Thank you.
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Governor Gramlich.
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Yes, I have a similar comment and question. I'm typically a stay-ahead-of-the-curve guy, but I rather like the outcome depicted by the blue line. So you're shaking my preconceptions a bit. However, I think a strategy that a number of us might be comfortable with is to start tightening fairly soon but to go a little mor...
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I would point to the regime-switching model, which I think speaks to two things that you've said. First, it isn't necessarily the case that market participants have a sharply delineated expectation of when you will start tightening. So I think it isn't obvious--and I probably should have included this in my answer to P...
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President Minehan.
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My first thought when I saw this chart was "be careful what you wish for" because I had indicated in my comments that we need to talk about these issues. I'm not sure I was prepared to talk about them at this meeting! In any event, I would totally want to avoid being associated with the red line because I do not believ...
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I think a message in the alternative NAIRU simulation that Dave put in Part 1 of the Greenbook was that, if you believe the NAIRU is lower than the staff estimate, you could associate yourself with the red line in the middle panel and get an outcome like the blue line in the lower panel or better. It's just a question ...
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Right.
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May I make just one follow-up comment on that? It's important to remember, though, that you don't get to choose what the NAIRU is. [Laughter]
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I know.
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We don't know what it is, but we don't get to choose it either. However, by virtue of the fact that we have to write down a forecast, in some sense a NAIRU is embedded in there. But ultimately, as Vince's middle panel of exhibit 3 shows, to stabilize inflation you're going to be driven back to whatever is the equilibri...
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Yes, I know he had to make assumptions.
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Vice Chair.
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I have a comment and then a question. The comment is that I think the difference between now and February 1994 is that we have been so much more transparent, beginning around that time, when we initiated the practice of announcing the decision taken at each meeting. So I think the likelihood of our surprising the marke...
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I would say that my confidence in the model is such that I contemplated not putting numbers along that axis but just sending the message that it was now, later, or even later.
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Yes.
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Small, large, and very large. [Laughter] Did you want to say something, Ned?
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I wanted to echo what Dave said. To reflect the properties in this model, the long-term unemployment rate has to be the NAIRU, which is 5.2 or 5.3 percent. And if we should be lucky enough that the NAIRU is below that, we could redo this exercise. We'd get the same basic pattern, but we wouldn't end up at the same prec...
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Any further questions for Vince? If not, let me get started. This has been an unusually interesting meeting in the sense that we are integrating our policy discussion with the outlook for an economy that is undergoing significant structural change that will in turn determine where our policy should be in the future. Ou...
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Thank you, Mr. Chairman. I concur with your recommendation. And I would point out that if the next move has to be up, which I think it will be, we can certainly move from a balanced balance of risks statement. There is no reason at all in my view to inhibit us from doing that.
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President Jordan.
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Thank you, Mr. Chairman. First, as for the 1994-95 episode, I really don't think that holds any lessons that would help us this time because what preceded our first action then was quite different from today. In that earlier period we had had, as I recall, some sixteen months of no change in the funds rate. And part of...
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Governor Ferguson.
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I endorse both parts of your recommendation.
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President Parry.
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I also endorse both parts of your recommendation. And I think that you've articulated well the kinds of challenges we're likely to face at the next meeting. Thank you.
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President Poole.
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Mr. Chairman, I support the recommendation. I had at the top of my page of notes that this is probably the easiest decision we're going to face for quite some time, which you pointed out as well. I also want to reflect just a bit on what we have ahead of us. The market is going to be asking the question--probably after...
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Oh, we could move intermeeting if necessary.
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Well, we could. I'm not in favor of moving between meetings unless there is some significant reason in the incoming data to do that. At any rate, an intermeeting move would give us steps of 50 basis points, and whether they come individually in 25 basis point increments I think is much less important.
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President Guynn.
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Mr. Chairman, I support your recommendation.
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President Minehan.
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I support your recommendation, Mr. Chairman.
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President Broaddus.
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Mr. Chairman, I support your recommendation. I'd like to make just a quick comment, following up on what Bill Poole said about how we would be looking at this process of tightening in the next few weeks and months. In my view it's important that our behavior as we move in this direction is symmetric with our behavior o...
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President Moskow.
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Mr. Chairman, I agree with both parts of your recommendation. I don't think there's any urgency to move today. I do think we can go from a balanced risk statement today to an increase in the funds rate in May without any problem at all. And I, too, like the idea of putting in the statement something about monetary poli...
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Yes. Let me clarify a point with respect to what I said to Bill Poole. Bill, my view of 25 or 50 basis points is that I would think we'd start with moves of 25. We may have to pick up the pace. Indeed, that's a judgment we can make. It's just that I would not start with a 50 basis point increase. I think that would be ...
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I'm certainly inclined to go that way, too. But I can imagine data coming in that would suggest that things are moving a whole lot faster than we anticipated and that a move of 50 basis points would be appropriate.
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The burden of proof would have to be on a very extraordinary change that we really didn't anticipate. At least that's the way I would look at it. President Stern.
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I, too, support your recommendation, Mr. Chairman. Let me just make one additional comment. We've been looking recently at what I suppose I would generously call some low inflation policy rules. While recognizing that beauty is frequently in the eyes of the beholder, the implication of these rules, at least at the mome...
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Governor Bies.
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I support your recommendations, and I particularly like the comment about policy being accommodative.
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President Hoenig.
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Mr. Chairman, I certainly see a need to proceed as you've outlined today, and I would support that. I would add, though, that I think we could continue to see some fairly strong data and perhaps some data surprises on the upside, given what we've experienced recently. So I believe that having the accommodative language...
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Yes. You know, we've been very fortunate. We have been able to move, with very few exceptions in the last couple of years, only at meetings. That is not our history. We have been required to move intermeeting many times. So it's only if policy is extraordinarily well constructed that we move only at these arbitrarily s...
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Thank you, Mr. Chairman. I support your recommendation. I'm typically easily persuadable by simulations, but I think I like the scenario that you laid out--where we get started relatively early with smallish steps, feeling our way--better than the black and blue choice [laughter] that Vincent gave us. The latter might ...
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President McTeer.
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In view of the clock, I will agree with your recommendation without further editorial comments.
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Governor Olson.
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I support both parts of the recommendation.
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President Santomero.
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I support your recommendations, Mr. Chairman.
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That's it.
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I think that does it. Would you, Mr. Secretary, read an appropriate directive?
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The Bluebook page I'll be reading from doesn't have a number, but if it did, it would be page 13. [Laughter] "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 imme...
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Would you call the roll?
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Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Bies Yes Governor Ferguson Yes Governor Gramlich Yes President Jordan Yes President McTeer Yes Governor Olson Yes President Santomero Yes President Stern Yes
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Let's distribute copies of the press release draft. Does anybody have any comments or questions?
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Excellent!
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