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fomc | 2,003 | Governor Olson. | 3 |
fomc | 2,003 | I'd like to add two points to the discussion. One is based on having talked with a number of bankers--in this case, representatives of some of the largest lenders of the thrift industry--who reaffirm what we have learned from other sources about the residential mortgage market. Their figures on applications and closing... | 1,005 |
fomc | 2,003 | Governor Bernanke. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I continue to believe that structurally the U.S. economy is reasonably healthy, both financially and in real terms. So why is the economy struggling? A few stories have circulated. In my view, the various analyses we've been hearing comparing the United States economy to the post-bubble Japanes... | 598 |
fomc | 2,003 | President Santomero. | 5 |
fomc | 2,003 | Thank you, Mr. Chairman. Since our last meeting there has been very little change in economic activity in the Third District. The recovery continues at a slow pace. While the fourth quarter ended on a weak note, this wasn't a surprise. Data suggest that consumers in the region pulled back on spending on nondurables, an... | 1,161 |
fomc | 2,003 | Governor Bies. | 4 |
fomc | 2,003 | The factors underlying the momentum in the economy continue to be split, as we've been saying around the table. Households continue to show optimism, and businesses continue to find ways not to expand. Consumers bought cars for Christmas and housing starts reached sixteen-year highs. Mortgage refinancings supplied addi... | 392 |
fomc | 2,003 | Mr. Reinhart. | 5 |
fomc | 2,003 | 4 Thank you, Mr. Chairman. I'll be referring to the materials that are being handed out. One of the more difficult aspects of putting together the materials supporting your policy discussion was reconciling the divergent movements of key financial asset prices over the intermeeting period. The first exhibit reviews tho... | 2,030 |
fomc | 2,003 | Questions for Vincent? If not, let me see if I can review what has been said around this table. I think there is a general consensus that the evolution of geopolitical risks, the rise in oil prices, and the increased probability and nearer time frame of a war in Iraq have essentially masked what the underlying structur... | 1,952 |
fomc | 2,003 | Mr. Chairman, I think in an atmosphere of enormous uncertainty it's the easiest call in the world to agree with your recommendation, which I support fully. | 30 |
fomc | 2,003 | Governor Ferguson. | 3 |
fomc | 2,003 | I also support your recommendation. | 6 |
fomc | 2,003 | President Hoenig. | 4 |
fomc | 2,003 | Yes, I support your recommendation. | 7 |
fomc | 2,003 | President Guynn. | 4 |
fomc | 2,003 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 2,003 | President Santomero. | 5 |
fomc | 2,003 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 2,003 | President Pianalto. | 4 |
fomc | 2,003 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 2,003 | Governor Gramlich. | 4 |
fomc | 2,003 | I support your recommendation. | 5 |
fomc | 2,003 | Governor Kohn. | 4 |
fomc | 2,003 | I support your recommendation. | 5 |
fomc | 2,003 | President Minehan. | 4 |
fomc | 2,003 | I support it as well. | 6 |
fomc | 2,003 | President Broaddus. | 5 |
fomc | 2,003 | I support your recommendation. | 5 |
fomc | 2,003 | Governor Bies. | 4 |
fomc | 2,003 | I support your recommendation. | 5 |
fomc | 2,003 | Governor Bernanke. | 4 |
fomc | 2,003 | I support both parts of your recommendation, Mr. Chairman. | 12 |
fomc | 2,003 | I support both, Mr. Chairman. | 8 |
fomc | 2,003 | President Stern. | 3 |
fomc | 2,003 | I support. | 3 |
fomc | 2,003 | I support it. | 4 |
fomc | 2,003 | President Parry. | 4 |
fomc | 2,003 | I support it as well. | 6 |
fomc | 2,003 | Anybody left? Well, let me put it the other way around. If we were to call a vote, would anybody object? Okay, let's go with it. | 33 |
fomc | 2,003 | The draft language is in the Bluebook. The page is not numbered, but I guess if it were, it would be page 14: "The Federal Open Market 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 fut... | 141 |
fomc | 2,003 | Call the roll. | 4 |
fomc | 2,003 | Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Bernanke Yes Governor Bies Yes President Broaddus Yes Governor Ferguson Yes Governor Gramlich Yes President Guynn Yes Governor Kohn Yes President Moskow Yes Governor Olson Yes President Parry Yes | 50 |
fomc | 2,003 | The press statement that we scribbled out is perhaps slightly more optimistic than was the tone of the Committee's discussion, but it fits pretty well the forecasts that the individual Bank presidents and Board members have submitted. I think what we're confronted with is what we were discussing yesterday. There is a s... | 133 |
fomc | 2,003 | Not issuing a statement would attract a lot of attention. | 11 |
fomc | 2,003 | Absolutely. | 2 |
fomc | 2,003 | A lot more attention than the statement would. | 9 |
fomc | 2,003 | As a bear, let me say that this middle paragraph is vague enough that it's fine. | 18 |
fomc | 2,003 | Perfect draftsmanship. | 4 |
fomc | 2,003 | Any questions? If not, we will go with it. I forgot to mention earlier that for those of you who'd like to change your forecasts, please give the revised forecasts to Dave Stockton by the close of business this Friday. The meeting is adjourned. We will reconvene on March 18, if not before. | 66 |
fomc | 2,003 | Would somebody like to approve the minutes of our January 28-29, 2003, meeting? | 21 |
fomc | 2,003 | So move. | 3 |
fomc | 2,003 | Second. | 2 |
fomc | 2,003 | Without objection. Dino Kos. | 6 |
fomc | 2,003 | 1 Thank you, Mr. Chairman. I'll be referring to the charts that were distributed a short time ago. Since your last meeting, markets have been characterized by a high degree of risk aversion--driven, first, by uncertainty about the timing and extent of war in Iraq; second, by uncertainty about the underlying condition o... | 2,397 |
fomc | 2,003 | Questions for Dino? Governor Ferguson | 6 |
fomc | 2,003 | Dino, on page 2 you've shown us both the two-year swap rate and the policy rate for various countries. I'm trying to understand if there is any policy implication or meaning in the relationships we see in the euro area, the United Kingdom, and Australia versus those in Canada and the United States. Obviously in those f... | 145 |
fomc | 2,003 | That's a great question. The Committee spoke about the Canadian situation last time as something of an outlier, and one can see that here as well. I think one way to view this is that the market probably does consider the prospects for the United States and Canada as somewhat better than for the euro area and the Unite... | 183 |
fomc | 2,003 | Are there any risk differentials between the two-year swaps and the government or central bank rate? We're looking at the shape of the yield curve. | 29 |
fomc | 2,003 | Yes, I could have used the two-year note, but that creates a different problem of credit differentials among countries. So, I decided to take the two-year swap rate across all of these countries. But I think we would see the same kind of pattern--although the level would be different--if we used the two-year note. The ... | 90 |
fomc | 2,003 | Incidentally, I've always presumed that the GSEs could essentially construct whatever duration gap they wanted and that the only issue was the cost of doing it. Since Freddie tends to have a much narrower gap than Fannie, is it correct to presume that they are willing to pay the insurance premium to create that gap whe... | 68 |
fomc | 2,003 | Yes, I think that's a good interpretation, and I believe that's the analysis that most in the market have made. Interestingly though, one would have thought, that being the case, that Freddie would be rewarded with a higher PE in its equities, but one doesn't see that. One could argue that they are being more prudent a... | 88 |
fomc | 2,003 | Well, aren't there other factors that determine the size of the PE? I assume profitability is one. It doesn't necessarily follow that the PE is not affected by the duration gap. | 35 |
fomc | 2,003 | The other obvious factor, Mr. Chairman, would be earnings growth. A willingness to run your book with a little less insurance might also be associated with efforts to expand the overall size of the balance sheet and to increase earnings. In fact, Fannie's earnings growth has been faster than Freddie's. | 60 |
fomc | 2,003 | It has been faster because Fannie is willing to take more risk, which is your point about how much insurance a GSE is willing to take out. | 31 |
fomc | 2,003 | I think what is really happening is that the management of Freddie Mac--when one discusses this with their chairman it's very clear-- does not want to take as much risk as Fannie does. In my view, however, the market is much too inclined to see Fannie and Freddie as if they're two identical companies and their PEs not ... | 109 |
fomc | 2,003 | So the bottom line is that that's bad judgment on their part? | 13 |
fomc | 2,003 | I think the bottom line is that it's good judgment on their part. It just shows that markets are not perfect after all. | 25 |
fomc | 2,003 | Governor Bernanke. | 4 |
fomc | 2,003 | Dino, my question is on the Japanese government yield curves shown on page 1. Would you interpret the decline in the yield curve over the last year as a change in inflation or deflation expectations, or is it a change in liquidity premiums as a result of the net supply of bonds and the demand for liquidity? Can you par... | 72 |
fomc | 2,003 | I think it's very difficult to parse. If you pushed me, I would probably say that the market in the last year has become more inclined to think that deflation has become ever more entrenched. Therefore, market participants tend to feel that the risk of being badly burned in the near term by buying a ten-year bond is lo... | 99 |
fomc | 2,003 | We do see the spread between the synthetic and the benchmark ten-year issues going down significantly, which suggests that liquidity is improving. | 25 |
fomc | 2,003 | Yes, that's an interesting point, and I've asked about that. One explanation I'm hearing is that liquidity is improving, which it probably is. The other one is that we're not seeing much supply. Japanese corporations are still not borrowing, and investors are starved for yield. One can buy a lot of government paper at ... | 96 |
fomc | 2,003 | We don't have any survey data or other information on long-term deflation expectations? | 16 |
fomc | 2,003 | I don't know of any. Karen, have you seen anything? | 13 |
fomc | 2,003 | No, nothing that would go out far enough to answer the question. | 14 |
fomc | 2,003 | Thank you. | 3 |
fomc | 2,003 | It is interesting in one sense, though, that the curve has been pulled down. Interest rates are lower, and spreads have come in; yet the economy really does not seem to be able to respond. So it does raise the question of whether a flat yield curve produces better prospects for the economy. | 60 |
fomc | 2,003 | The other point I'd make, Governor Bernanke, is that in the indexed debt market in the United States, as the Chairman noted, the ten-year yield is down more than 11/2 points over that same year. So we can't rule out the possibility that what we're seeing is a shifting lower of world real interest rates. | 66 |
fomc | 2,003 | That's certainly the case with the TIPS. Further questions for Dino? If not, Vice Chair. | 20 |
fomc | 2,003 | I move approval of the domestic operations, Mr. Chairman. | 12 |
fomc | 2,003 | Without objection, they are approved. We now move on to the staff report. Dave Stockton and Karen Johnson. | 22 |
fomc | 2,003 | We faced some rather considerable challenges in assembling this forecast--the largest one, of course, being to find a way to be helpful to you in setting monetary policy in a period when the probability of imminent military conflict with Iraq has become very high. Early last fall, the Chairman commenced one of our pre-... | 2,862 |
fomc | 2,003 | In putting together the baseline forecast for the rest of the world, the staff in the International Finance Division grappled with the same issues that confronted those forecasting the domestic economy, but spread over a wide range of countries. With the outbreak of war perceived by many to be likely and soon, a host o... | 1,586 |
fomc | 2,003 | Questions for our colleagues? President Broaddus. | 10 |
fomc | 2,003 | I had a question, Mr. Chairman. But first I wanted to thank Karen very much for the memo she sent out a couple of weeks ago. That was very helpful to me in understanding some of the obstacles to adjustment overseas in particular, and it related to some of the things you just said. My question, Dave, is about the tax cu... | 139 |
fomc | 2,003 | Obviously that remains a political forecast, and it's an assumption that I can't say we hold with enormous conviction. I would point out that the magnitude of the tax cut that we have built into this forecast is close to the figures around which the moderates in the House and Senate are coalescing. That doesn't necessa... | 322 |
fomc | 2,003 | President Parry. | 4 |
fomc | 2,003 | Dave, a common theme of many forecasts is that a gradual slowing of consumer spending, especially for durables and residential investment, will be more than offset by a pickup in business investment. Somewhat in contrast to that, the Greenbook forecasts considerable strength in spending for durables and for residential... | 128 |
fomc | 2,003 | There are a few reasons that we think that by 2004 we will see reasonably robust gains in consumer durable spending. One is the overall interest rate environment in this forecast, which I think is generally more favorable than in the consensus forecast. We have built in no increase in the federal funds rate through the... | 70 |
fomc | 2,003 | There is a mention of an increase in Treasury rates. | 11 |
fomc | 2,003 | There's a little drifting up in Treasury rates, which is offset in our view by a compression of private spreads as the overall economy improves. Two, we're expecting the relative price of durable goods to continue to decline and to decline quite rapidly. In essence, we think the user cost of purchasing those goods will... | 209 |
fomc | 2,003 | Thank you. | 3 |
fomc | 2,003 | President Hoenig. | 4 |
fomc | 2,003 | Dave, let me ask a question about the structural labor productivity chart. In your forecast, the contribution from capital deepening stays relatively low going forward, and yet the multifactor productivity numbers remain fairly strong. You also talked about the slump in investment spending. What is your thinking on the... | 74 |
fomc | 2,003 | Our basic thinking has been that one needs to resort to a supposition of reasonably strong multifactor productivity to explain the incredible strength in labor productivity that we've had over the past two years. If anything, our straightforward statistical filtering models would want to put in more multifactor product... | 219 |
fomc | 2,003 | The only reason I was asking is that, with a holding back in investment and therefore limited gains from new technology, I wondered whether we can continue to harvest that. I don't disagree with you because it's hard to explain otherwise. | 45 |
fomc | 2,003 | I think you're right, though. Obviously, if whatever is holding back investment spending were to persist longer than we have projected in this forecast, it would be harder in some sense to embody technological improvements going forward. That could have some follow-through effects on multifactor productivity as well. | 56 |
fomc | 2,003 | Thank you. | 3 |
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