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fomc | 2,002 | You say that with a smile? For the official record, we will indicate that he smiled. [Laughter] | 23 |
fomc | 2,002 | It may be useful to initiate small Ginnie Mae and ACF pilot programs in order to gain some experience. You asked also about the timing. I would suggest, somewhat arbitrarily, six to twelve months of further study of those two options and a subsequent update to the Committee. | 56 |
fomc | 2,002 | Before we proceed, could I just ask a question? I, too, think that it is worthwhile publishing the study. Does anyone have any objections to that? SEVERAL. No. | 38 |
fomc | 2,002 | Can I assume that it's the Committee's judgment that we do so? | 14 |
fomc | 2,002 | The Committee's informal judgment. | 6 |
fomc | 2,002 | Yes, informal judgment. It's the separate judgment of individual members of the Committee. Is that correct? | 20 |
fomc | 2,002 | Yes. | 2 |
fomc | 2,002 | Mr. Chairman? | 4 |
fomc | 2,002 | Governor Bies. | 4 |
fomc | 2,002 | Vincent mentioned that when this study goes out to the public it would have a cover memo or foreword. I think it would be helpful to note that we are changing the way a lot of our facilities can work, requiring perhaps different types of facilities. We might note why this would involve removing the stigma from borrowin... | 153 |
fomc | 2,002 | Right. We can include that in the foreword and also in the first footnote to the ACF discussion in the study itself. | 27 |
fomc | 2,002 | Governor, if I might comment? We didn't know at the time that the System was going to proceed with the Lombard facility. But within the ACF or discount window alternatives portion of the study, there was a comment that the ACF could work with either an adjustment credit or with a Lombard style facility. | 63 |
fomc | 2,002 | Vice Chair. | 3 |
fomc | 2,002 | My Chairman, not unrelated to the fact that a lot of the work done on these studies is done by people at the New York Reserve Bank, I would suggest that we ask the staff to concentrate on the Ginnie Mae study and get that done at some reasonable pace. After that is brought back to the Committee to look at, then we coul... | 93 |
fomc | 2,002 | There's also the interesting question as to the relationship between the Ginnie Mae study and the reasons for the study. Remember, we started off with a presumption that we'd have a shortage of Treasury securities. | 40 |
fomc | 2,002 | Yes. | 2 |
fomc | 2,002 | We had a worthwhile discussion because there was a probability that such a shortage could happen. That probability is now gone for the foreseeable future. But the issue of whether Ginnie Maes should be part of the SOMA portfolio is a separate issue. | 49 |
fomc | 2,002 | Exactly. That's why I think that is worth pursuing. | 11 |
fomc | 2,002 | Governor Kohn. | 4 |
fomc | 2,002 | I agree with the Vice Chairman's recommendation. It seems to me that acquiring Ginnie Maes is a very natural extension of what we're doing now. We already buy full faith and credit paper; it's not obvious why we're not buying this other full faith and credit paper. I think it also may be a useful pilot project for lear... | 287 |
fomc | 2,002 | President Hoenig. | 4 |
fomc | 2,002 | Mr. Chairman, I'm on board with the Ginnie Maes. I think it makes sense. I said that when we met in early 2001. I'm interested in a little more study on the ACF issue. Looking at the federal debt projections, the need for that kind of facility has been pushed off, so I certainly recognize that we're not in a rush. But ... | 297 |
fomc | 2,002 | Certainly that would be helpful. | 6 |
fomc | 2,002 | President Broaddus. | 5 |
fomc | 2,002 | Mr. Chairman, I still think the best substitute for Treasury securities is no substitute, but I'll leave it at that because of the reaction I got the last time I tried to push that view. I agree with others who support the further study of Ginnie Maes. That certainly seems to be a natural thing to do. They're essential... | 534 |
fomc | 2,002 | President Santomero. | 5 |
fomc | 2,002 | I'm close to where President Hoenig is. The Ginnie Maes make sense to me, and I think we should continue to pursue how that might happen. And I believe it would be useful to look at the ACF alternative in direct comparison with Ginnie Maes to see why we would need the ACF if we had Ginnie Maes. On the question of wheth... | 294 |
fomc | 2,002 | President Moskow. | 4 |
fomc | 2,002 | I tend to think we should focus on the Ginnie Maes. I'd have the staff do that study and bring it back to this Committee and then we can decide whether that's sufficient to address the problem or not. I have some questions about whether we need an ACF. Given resource constraints--and since we have plenty of time here a... | 167 |
fomc | 2,002 | Governor Ferguson. | 3 |
fomc | 2,002 | Thank you. I think I'm generally with President Moskow and others. I would put much more emphasis on Ginnie Maes since we understand the legal ramifications there in that they are public securities. They're a step away from Treasuries but not that big a step. I would be cautious about an ACF, and I am very concerned, a... | 324 |
fomc | 2,002 | President Minehan. | 4 |
fomc | 2,002 | I'm in favor of what Governor Ferguson, Governor Kohn, and President Moskow said. I'd do the work on the Ginnie Maes first and learn from our ACF effort but put it on the shelf. If people have comments on it, fine, submit them. Also, when we put the staff studies out, they do mention an ACF type facility, though nowher... | 129 |
fomc | 2,002 | Anybody else? | 3 |
fomc | 2,002 | Mr. Chairman, I too would agree that the Ginnie Maes should be our first priority. It seems to me that foreign debt has a whole host of risks associated with it--political, credit, and exchange risks. I like the way that Don Kohn and Al Broaddus particularly talked about the ACF and the CACF. I think we could come back... | 129 |
fomc | 2,002 | Anybody else? Do you have an adequate response on this? | 12 |
fomc | 2,002 | We have more than sufficient direction, Mr. Chairman. [Laughter] | 15 |
fomc | 2,002 | A wee bit more than adequate. | 7 |
fomc | 2,002 | I hesitate to try to summarize this. I've always wanted to be in the position of the Congress, when they pass an ambiguous law and then just say to others, "You solve it." | 38 |
fomc | 2,002 | I would suggest that Dino and I go back and look at the transcript of this discussion [laughter] and solve that problem. One thing that's clear is that Dino will be studying the options associated with acquiring Ginnie Maes and then we'll get back to the Committee to-- | 55 |
fomc | 2,002 | I do think that the issue of limited resources is not a minor question. When we began examining this, there was a 1 in 10 chance that those budget surpluses really would arrive and that we would find ourselves in a very difficult position with regard to SOMA. So we had no choice but to look at the options. The likeliho... | 132 |
fomc | 2,002 | I think some guidance we might add is that the staff ought to pursue this as they can--not by hiring new people or by working overtime, but they ought to take it seriously. If it takes you six months or twelve months, that's not going to endanger the republic. | 56 |
fomc | 2,002 | On the Ginnie Maes, you mean? | 10 |
fomc | 2,002 | Let me make one other point. I agree with what others have said about leaving some of the tough judgments to the staff to make. On the contingency issue, however, we have invested a lot in contingency planning, and I don't think there's any reason to spend another minute on it at this stage. While I would leave it to t... | 109 |
fomc | 2,002 | From what I heard, and I hope Dino agrees, the Committee has taken off the table accepting foreign sovereign debt as collateral at this time; and has also taken off the table a contingency ACF. The first order of priority, in terms of staff study, is acquiring Ginnie Maes outright in the portfolio. And you're deferring... | 123 |
fomc | 2,002 | What I would propose then is that at some point over the next few months, at a meeting next year, we come back to the Committee with a proposal for what a Ginnie Mae program would look like. That is, we'd try to give you some concrete sense of the size of the program that we would envision and how we would buy the Ginn... | 164 |
fomc | 2,002 | I agree completely. I would urge you to make sure that the cost issues are indeed on the table. We may find out that the shadow price of our involvement in that market is sufficiently high that we want to look at alternatives. Or we may want to conclude that it's not worth the money. I'm not suggesting you would do tha... | 95 |
fomc | 2,002 | Dino has already been told that he has no room for expanding the budget for this--not two sous more than what he already has in the budget. | 31 |
fomc | 2,002 | Okay, this terminates the official FOMC meeting. | 12 |
fomc | 2,002 | The meeting is now open. Would someone like to move approval of the minutes of the previous meeting? | 20 |
fomc | 2,002 | I move approval. | 4 |
fomc | 2,002 | Thank you. Without objection, they are approved. Dino. | 12 |
fomc | 2,002 | 1 Thank you, Mr. Chairman. I'll be referring to the charts that were circulated a few minutes ago. The top panel on the first page graphs three-month cash deposit rates for the dollar and the euro as well as three-month deposit rates three months and nine months forward. The U.S. three-month deposit rate--the solid red... | 2,190 |
fomc | 2,002 | Questions for Dino? Governor Bernanke. | 8 |
fomc | 2,002 | Dino, on the mortgage-backed securities chart on page 2, I wondered if the sharp declines might reflect a decline in refinancing risks. Or do you think they reflect the same consideration of all the risks that apply to other kinds of debt? | 49 |
fomc | 2,002 | I think the lower refinancing risks probably were a factor, but the mortgage market is rather complicated, and the optionality in mortgages is something that obviously is hard to predict. It's difficult to disentangle the refinancing aspect of the mortgage market from the broader trends that were narrowing spreads more... | 57 |
fomc | 2,002 | Thank you. | 3 |
fomc | 2,002 | Other questions? If not, Vice Chairman. | 9 |
fomc | 2,002 | Move approval of the domestic operations. | 7 |
fomc | 2,002 | Without objection. Thank you, very much. Let's turn now to David Stockton and Karen Johnson. | 19 |
fomc | 2,002 | Thank you, Mr. Chairman. I was impressed at the last meeting with the creative language used by many members of the Committee to describe the economic outlook. So this morning I thought I'd try my hand at explaining the forecast using some of that language. To begin with the current quarter, I can report that--as the s... | 93 |
fomc | 2,002 | It turned out to be seedy! [Laughter] | 12 |
fomc | 2,002 | The story of our longer-term projection should be familiar. Though we believe that there was a little jam yesterday and that there is some jam today, we would have to admit that in the projection it's still mostly jam tomorrow. The inflation picture also is about unchanged; everything at the dollar store still costs a ... | 2,335 |
fomc | 2,002 | As we reported in the Greenbook, the staff did not see the developments since the November FOMC meeting as indicating a need for any major revisions to our outlook for economic activity abroad or for the U.S. external sector. Some new information did prompt marginal changes to our forecast for particular countries, but... | 1,043 |
fomc | 2,002 | Incidentally, did you factor in the expanded estimate of oil reserves in the La Brea tar pits? | 21 |
fomc | 2,002 | To the extent that that is built into the futures markets, it's comfortably within our forecast. | 18 |
fomc | 2,002 | I think we will defer in all respects to President Jordan in case he wants to leave early and go back to the private sector! [Laughter] | 30 |
fomc | 2,002 | Thank you. Dave, I saw a report last week that the 2000 Census had been adjusted further--by another 3.3 million people--to correct an undercount. And if my memory is not already failing, the rolling forecast initially had numbers that were 71/2 million or so lower than the preliminary Census 2000 data. We're talking a... | 144 |
fomc | 2,002 | Well, the short and honest answer is "no." We'd have to think long and hard about what aspects of the statistical program would have to be adjusted and thus blown up by a larger population number. Obviously some measures would not need to be adjusted because many of the figures--the census of manufacturers, the retail ... | 213 |
fomc | 2,002 | Theoretically, population is also a factor embodied in the underlying housing demand analyses that we've been doing. Haven't we taken that into consideration to a significant extent? | 33 |
fomc | 2,002 | Well, as you know, partly at your direction, prior to the 2000 Census we had been looking at the possibility that there would be some significant upward revision in the population estimates, and in some sense that certainly had already informed our thinking. These recent revisions, however, are additional refinements. ... | 112 |
fomc | 2,002 | President Poole. | 4 |
fomc | 2,002 | Thank you, Mr. Chairman. I have a couple of questions I'd like to ask. If we were to compare the forecast this time with the forecast last time using the market-based funds rate line in your alternative scenarios, I take it that not very much has changed. Am I reading you correctly? I didn't pull out my previous Greenb... | 104 |
fomc | 2,002 | Yes, and the differences weren't very pronounced last time, whereas this time they are more pronounced. | 19 |
fomc | 2,002 | They are more pronounced this time. So if we were comparing the two forecasts, there has been a little improvement in the market's outlook for GDP, employment, and so forth, but not all that much? | 42 |
fomc | 2,002 | Yes, as of a little over a week ago it looked to us as if the revision in market expectations for the funds rate implied an upward revision to the market's outlook for spending. In contrast, our forecast was only adjusting to the extent that we had lowered the entire path of the funds rate going forward to reflect your... | 103 |
fomc | 2,002 | Okay. My next question is about two rather outsized numbers that caught my eye. The less important one is the surge in M3, which was concentrated in institutional money market funds. It's a big number. Do we know what's going on there? And second, what do you make of the productivity surge? That's obviously a very impo... | 91 |
fomc | 2,002 | I'll start with your second question, and perhaps Vincent will speak to the M3 data. Obviously there was another very significant surprise in the productivity numbers. Some of that is real in that output, in fact, turned out to be a bit better than we had expected. Some of it is a reflection of the way the statistical ... | 210 |
fomc | 2,002 | Incidentally, if it is an intermediate product, then that's a correct calculation. | 16 |
fomc | 2,002 | That's absolutely right. But I would say-- | 9 |
fomc | 2,002 | That's not to say that it didn't happen. | 9 |
fomc | 2,002 | Right, and if it really did, that would show up as much more productivity or output in essence in the provision of financial services. | 27 |
fomc | 2,002 | What I'm trying to get at is that unless one is arguing that the interpretation is questionable as to whether it's an intermediate or final product, then that's no different than any of the other 10,000-- | 41 |
fomc | 2,002 | Well, I'm trying to explain why nonfarm business output--when one looks at the top line of GDP--was so close to what we had expected while productivity was so much stronger. You're absolutely right that to the extent that this productivity growth really reflects higher productivity in the mortgage banking industry, for... | 296 |
fomc | 2,002 | Yes, but except for the refinancing issue, there does not seem to be any statistical anomaly that you can put your finger on. | 26 |
fomc | 2,002 | No, but I do think there are some reasons for being a bit cautious when we get sharp moves. There is a question as to whether the accounting system is in fact completely frictionless. I'm not sure. | 42 |
fomc | 2,002 | So it's not just a one-quarter phenomenon? | 9 |
fomc | 2,002 | It's not just a one-quarter phenomenon. Obviously, we've had a year now of absolutely spectacular productivity growth. | 21 |
fomc | 2,002 | Yes, a year of remarkable numbers. | 8 |
fomc | 2,002 | Just to remind you, we did see a pattern of quite strong productivity growth in the early 1990s that played out before the acceleration in the expansion got going. We saw a surge in the early 1990s that one also could have interpreted as an acceleration of underlying productivity, which turned out later not to have occ... | 133 |
fomc | 2,002 | As you noted, President Poole, M3 has been growing very rapidly. It's on track for something like a 191/2 percent rate of growth in November. That is accounted for mostly by the growth in money funds, which probably expanded at a rate of about 80 percent last month. That in turn is a direct result of the policy easing ... | 130 |
fomc | 2,002 | But the funds obviously are not coming--not entirely anyway-- from other M3 assets. | 18 |
fomc | 2,002 | A lot of them would involve some substitution from RPs in particular. But we think that, on net, there is some attraction from other sources of funds into M3. | 35 |
fomc | 2,002 | Do you have any idea where the funds were coming from to the extent that they were from outside M3 assets? | 23 |
fomc | 2,002 | Not in particular, no. | 6 |
fomc | 2,002 | President Moskow. | 4 |
fomc | 2,002 | I had a question about the deflation scenario that you showed in the Greenbook, David. As I understand the scenario, deflation was caused by two factors. One was the downward adjustment to prices, and an unexpected weakness in aggregate demand was added to it. I have two questions about this. First, if we didn't have t... | 137 |
fomc | 2,002 | In terms of the relative contribution of the shocks we built into this scenario from wages and prices and from the weakness in aggregate demand, it's roughly half and half. You can see that to some extent by taking a look at the numbers in the recession scenario, which in essence has just the weakness in demand. That g... | 437 |
fomc | 2,002 | Let me make sure I understand the first part of your answer. If we had only the shock from lower prices and lower wages, that would not have a sufficient impact to produce the effect on output shown in the Greenbook simulation. | 46 |
fomc | 2,002 | Not of the dimensions that we built into this scenario. Again, we could construct all sorts of simulations; we could give the model any kind of shock we wished. But in terms of the type of shock we gave it in this simulation, it would not be sufficient to push us into deflation. | 60 |
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