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fomc | 2,003 | It's yours! [Laughter] | 7 |
fomc | 2,003 | It's mine. When you're the father of something that even at the age of three proves not to be as attractive as you had hoped, you have one of two choices. You can still embrace it because it's yours and wait for it to grow up and become that lovely swan that you expect. Or you can say, "You know, you're not as attracti... | 348 |
fomc | 2,003 | Governor Gramlich. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. First, on inflation itself I would certainly agree that, if asset prices are not declining, there is less financial risk than if they were. However, we should keep in mind--though I have to think more about this--that, if goods prices are declining, then the real cost of capital is rising and I... | 120 |
fomc | 2,003 | That would be a very interesting seminar topic because there are various aspects to it. | 16 |
fomc | 2,003 | Right. I want to agree. But there is a difference between a lower cost of capital where the markets have lowered it versus your point, Ned, which is a low cost of capital because the issue is low versus what. I think you're absolutely right that rates of return depend on a number of factors and not just asset prices. S... | 73 |
fomc | 2,003 | My second point is that I definitely don't want to blunder about when markets are fragile. I think we have to be very careful about this whole issue, but we should also recognize that markets aren't exogenous either. Markets are influenced by what we say and do. So if for whatever reason there is not sufficient expecta... | 302 |
fomc | 2,003 | If not in seven weeks! | 6 |
fomc | 2,003 | President Poole. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. Let me start at a little different place than you did, but I'll come back. When I came in this morning, I had been thinking about how to assess the potential costs of lowering rates when in retrospect that proved not to have been necessary or desirable versus the costs of not lowering rates whe... | 548 |
fomc | 2,003 | Governor Kohn. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I support your recommendation and the announcement as drafted largely for the reasons that President Poole just stated. I also would have been comfortable if you had recommended a slight cut in rates and that had been possible given the market situation. I agree, too, that the risk-reward trade... | 356 |
fomc | 2,003 | President Hoenig. | 4 |
fomc | 2,003 | I support this statement. I would say, perhaps not unlike others, that if we had taken an action today, I would have been a little squeamish. But certainly I understand where the risks are and would have supported an easing. I think unbundling the risks is a very good idea. In my view, the second paragraph isn't necess... | 146 |
fomc | 2,003 | I think you're giving instructions to the gentleman to your right. | 12 |
fomc | 2,003 | As a request. | 4 |
fomc | 2,003 | Your remarks this morning and those of Governor Bies and others around the table echo the comments I've heard from members over the last couple of weeks in other conversations. So the Chairman has agreed that the special topic at the first day of the June meeting should focus on alternative policy regimes in an environ... | 164 |
fomc | 2,003 | President Broaddus. | 5 |
fomc | 2,003 | Mr. Chairman, I would like to start off with where I was before I saw this draft statement and then react to the statement. At the risk of some repetition, to me the key policy issue this morning is whether we want to act today to preempt a buildup of disinflationary momentum or whether we want to wait a little while t... | 526 |
fomc | 2,003 | It is, indeed, another way. But if we start to do that type of statement, we have to be very careful to make sure that we have the actual capacity to implement the goal. Too many times people have said we will not allow X to go below Y or we will not allow some specific thing to happen. That's very forceful if one has ... | 147 |
fomc | 2,003 | I would just respond, if I may. I know we can't guarantee in any short period of time that we can put a floor on the inflation rate. But I would hope that over any reasonable period of time we could do that with monetary policy. | 50 |
fomc | 2,003 | Actually, the Bank of Japan thought it could. | 10 |
fomc | 2,003 | Just on this debate. Al, I think the problem is that wording the statement the way you suggest actually moves us quite a distance toward inflation targeting. Many people around the table have different views regarding the desirability of inflation targeting. I know where you are. I know where Ben is and where many othe... | 115 |
fomc | 2,003 | President Stern. | 3 |
fomc | 2,003 | Thank you, Mr. Chairman. Let me start first by commenting on the statement, which I like a lot. It may not be perfect, but I consider it a distinct improvement so I think we should go with it. As for policy, on balance I agree with you that we're probably better off not acting today. Not only are financial markets frag... | 168 |
fomc | 2,003 | President Minehan. | 4 |
fomc | 2,003 | So much on the table here! First, with regard to the policy action, obviously I'm not a voting member; but if I were, I could have voted for an easing in policy, and I could have done it on the basis of the concerns you expressed at the end of your testimony last week. That is, we may need a more stimulative stance of ... | 505 |
fomc | 2,003 | This is not the first time that particular phrase has been argued. The issue basically is this: When we talk about risks to something we have to say what that something is. In other words, just to say the risks are balanced or unbalanced is fine if one knows the base against which the evaluation is being made. | 64 |
fomc | 2,003 | No debate. | 3 |
fomc | 2,003 | The point here is that the term "sustainable growth" is a proxy for an expanding economy whose growth is internally sustainable, meaning it does not have in it the seeds of its own demise. Now, one can argue that that is maximum sustainable growth, and one can argue that it won't matter--the difference here is hardly d... | 106 |
fomc | 2,003 | I'm not suggesting that we put a number down. I'm just wondering what we mean by it. | 19 |
fomc | 2,003 | It means what is acceptable. | 6 |
fomc | 2,003 | That's what we mean. | 5 |
fomc | 2,003 | As the Chairman has indicated--I'm sorry to talk out of turn without being called on. | 18 |
fomc | 2,003 | You're called on. | 4 |
fomc | 2,003 | This concept really is very much about a growth rate that is close to potential. Now, potential growth is in a range that we've never been public about, and I'm not sure we all agree that it's currently somewhere between 3 and 31/2 percent. | 52 |
fomc | 2,003 | Right. | 2 |
fomc | 2,003 | I believe the staff still considers potential to be in that range, and I think all of us generally understand that that's what we mean here. The reason we've chosen this language is that we've been using these words for a long, long time. They go back to the era of the Humphrey-Hawkins legislation. In my view, it's bet... | 272 |
fomc | 2,003 | Well, if we're talking about growth that is close to potential and doesn't contain the seeds of its own destruction--i.e., it's not inflationary and is not straining resources--my own view is that there are more downside risks to that forecast in the near future than upside risks. One can debate that, I suppose. There ... | 309 |
fomc | 2,003 | President Santomero. | 5 |
fomc | 2,003 | I concur with your decision and support it. I like the idea of splitting up the two sentences. If I were a wordsmith, I'd argue that the "taken together" sentence doesn't need to be there. Let the markets put it together and just indicate what we believe the conditions are that relate to sustainable growth and inflatio... | 111 |
fomc | 2,003 | Governor Bies. | 4 |
fomc | 2,003 | I can support the statement. I like the fact that we've broken out the two risks explicitly in this. I could have voted for a reduction in the funds rate target today because I'm looking at how much the market has moved the fed funds futures rates since our last meeting. The market is pricing in a rate cut; it's just a... | 211 |
fomc | 2,003 | Governor Olson. | 3 |
fomc | 2,003 | Based only on my reading of the Greenbook and the options presented in the Bluebook, I would have supported an easing today. I am persuaded, however, by the timing question to support your recommendation. I would just like to add one point about executive sentiment, building on comments made by the Chairman, Vice Chair... | 381 |
fomc | 2,003 | Governor Bernanke. | 4 |
fomc | 2,003 | I can support your recommendation, Mr. Chairman. I like the statement and the decoupling of the references to inflation and growth. I would note that there are some potential and logical issues regarding the statement that will probably emerge as we get more experienced with it. For example, if the two risks are in opp... | 136 |
fomc | 2,003 | That's called oranges and sausages. | 7 |
fomc | 2,003 | We could always vote on our loss function. | 9 |
fomc | 2,003 | People have suggested that, Governor Ferguson. | 8 |
fomc | 2,003 | President Parry. | 4 |
fomc | 2,003 | Mr. Chairman, I think a good case could be made for a further easing of policy today. The most likely scenario for the economy over the next year or so leaves significant excess capacity in place. With low inflation and the economy in a weakened state, I believe that erring on the side of ease most likely would entail ... | 288 |
fomc | 2,003 | President McTeer. | 5 |
fomc | 2,003 | Mr. Chairman, I think the decision on policy today is a close call. I could have easily supported an easing today. But as I said in my earlier remarks, I think the fairly dramatic improvement in the financial sector offers us enough promise that it's worthwhile to wait and see for just a bit longer. As for the bias sta... | 167 |
fomc | 2,003 | President Pianalto. | 4 |
fomc | 2,003 | I am supportive of the policy recommendation, and I support the unbundling of the two risks. I'm also pleased that the statement acknowledges our concern about deflation by indicating that a substantial fall in inflation would be unwelcome. However, I share some of the views expressed by others about the "taken togethe... | 143 |
fomc | 2,003 | President Guynn. | 4 |
fomc | 2,003 | Mr. Chairman, I support your recommendation to make no policy change today. I actually came in thinking--and I said this to somebody during the break--that the worst of all worlds would be to take no action today and to go back to a balance of risk statement of the kind we ended up with here. I think it was Al Broaddus... | 206 |
fomc | 2,003 | Mr. Chairman, could I just associate myself with the preference for eliminating that sentence? | 17 |
fomc | 2,003 | Is there a general willingness or desire to do that? | 11 |
fomc | 2,003 | I don't share that view because, if we take out that sentence, we in effect divorce ourselves from the previous form of the statement before we have an opportunity to discuss it adequately at our next meeting. | 40 |
fomc | 2,003 | Yes, I think it would be a mistake to pull it out. | 14 |
fomc | 2,003 | As do I. | 4 |
fomc | 2,003 | But if it's the consensus--. President Moskow. | 11 |
fomc | 2,003 | Thank you, Mr. Chairman. First, I definitely agree with the policy recommendation not to make a change today. That's in essence what I said in my statement, namely that we should wait. On the balance of risks issue, I do a mea culpa here. I was on the committee, Roger. | 61 |
fomc | 2,003 | You were? | 3 |
fomc | 2,003 | I certainly was, along with Bob Parry and Bill McDonough. | 15 |
fomc | 2,003 | But it's your baby! [Laughter] | 9 |
fomc | 2,003 | I think the language is obsolete now. There's no question that it needs to be changed. We need to eliminate the wording on the risks. I would have preferred to do the surgery on the swan--or whatever the analogy is--outside of this group. I'd suggest that another subcommittee be appointed to do that and to come back to... | 338 |
fomc | 2,003 | It's very difficult to make that judgment. Basically, if our sole purpose were to do exactly what the market expects, what we find is that one-half of the primary dealers who responded to a recent survey expected the FOMC to adopt a neutral statement. The other half were about evenly divided between expecting an assess... | 97 |
fomc | 2,003 | Is a postscript allowable, Mr. Chairman? Not to rebut, but I just want to make a point that there seems to be enough uneasiness about this hybrid statement that I'm uncomfortable with Vincent's notion that we might have to wait until next January to talk about this. I wonder if we can't find some way to get back to a f... | 126 |
fomc | 2,003 | Mr. Chairman, I agree with that. And I would like to associate myself with President Moskow's thoughts about appointing a subcommittee rather than waiting to get staff memos and so forth in January. Put a group together sooner rather than later, and let's get to it. | 57 |
fomc | 2,003 | That seems reasonable. Would you read the appropriate statement on which we will vote? | 16 |
fomc | 2,003 | The vote will be just on the federal funds rate? | 11 |
fomc | 2,003 | Correct. | 2 |
fomc | 2,003 | The wording is on page 13 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 consistent with m... | 71 |
fomc | 2,003 | Call the roll, please. | 6 |
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 | I think the only additional item on the agenda is to confirm June 24 and 25 as the dates for our next meeting. Vincent Reinhart will be in touch with all of you regarding special topics. | 41 |
fomc | 2,003 | Good afternoon, everybody. Today, as many of you know, is Dave Lindsey's last meeting before he retires in August. David has been attending Federal Open Market Committee meetings regularly since 1981. Really! That doesn't show good judgment! [Laughter] And he has been a member of the Board's staff going all the way bac... | 160 |
fomc | 2,003 | Mr. Chairman, I have a question. After he leaves are we allowed to talk to him about this paper? [Laughter] | 27 |
fomc | 2,003 | After one year! Would somebody like to move approval of the minutes of the May 6 meeting? | 20 |
fomc | 2,003 | So move. | 3 |
fomc | 2,003 | Without objection they are approved. We turn now to Mr. Reinhart and Mr. Kos. | 19 |
fomc | 2,003 | 1 Thank you, Mr. Chairman. I'll be referring to the material called "Conducting Monetary Policy at Very Low Short-term Interest Rates" which was on the table when you came in. It's the same as the material I sent to you electronically last week. I'd like to start on a personal note, though. I was in line at midnight on... | 4,472 |
fomc | 2,003 | 2 Vincent has outlined the strategic aspects to the conduct of monetary policy at very low short-term interest rates. I will be reviewing some of the tactical issues the Desk might confront in implementing policy if the funds rate target either could not fall any further or if the Committee chose not to let it fall bey... | 4,875 |
fomc | 2,003 | At this point, the staff is seeking guidance from the Committee on how to proceed. In particular, we will be listening especially intently to your discussion this afternoon for answers to the four questions highlighted in exhibit 9, the very last chart in my package. First, are there any alternatives that the Committee... | 140 |
fomc | 2,003 | Let me just say first that, combined with the supplemental memorandums you gentlemen have given us, you have covered the ground in an exceptionally comprehensive way. We have to be careful, though, not to try to lock in any particular strategy, largely because we don't know how events will transpire under a number of d... | 801 |
fomc | 2,003 | In lieu of following up directly, I'd like to ask a question. The Chairman mentioned the word "Japan." Prior to his remarks, we heard two briefings that lasted about forty-five minutes to an hour, and the issue of Japan did not come up. I'd like to know, recognizing that Japan has severe problems with its banking syste... | 178 |
fomc | 2,003 | Well--. [Laughter] The staff, as you know, did a paper that received some attention in which we came to the conclusion that the Japanese started too late. | 35 |
fomc | 2,003 | Right. | 2 |
fomc | 2,003 | That's an easy answer to give after the fact, and I hope we conveyed in the paper the thought that as we witnessed that period in real time we, too, did not perceive that Japan was sliding into the difficult situation that subsequently developed. So, that's meant to be a red flag. But it's also meant not to trivialize ... | 302 |
fomc | 2,003 | So it was a weakness in the commitment part of it? | 12 |
fomc | 2,003 | Right, and a failure to perceive the expectations part of it. I think they were counting on their statements to help a lot because of what otherwise isn't available to policymakers at zero interest rates. I don't think they really embraced the concept of expectations enough at the time, even intellectually, in terms of... | 75 |
fomc | 2,003 | Governor Ferguson, if I could just add a comment. I think your first point is the one that I would have started with, namely the problems in the financial system and the inability to intermediate credit, which have shown up in so many ways. We are fortunate that at least right now we don't have those kinds of problems ... | 114 |
fomc | 2,003 | Yet they really have only one means of financial intermediation, which is commercial banking. But we demonstrated in 1990, when our banking system froze up, that there were alternate means of intermediation, which carried us through and enabled the economy to recover until the banking system came back. They don't have ... | 108 |
fomc | 2,003 | Thank you, Mr. Chairman. Having just heard you say that these aren't necessarily options we want to talk about, I still would like to get a reaction from the staff about some of them--perhaps for the sake of discussion. Independent of what we may do tomorrow, we are at historically low interest rates, and people are wo... | 196 |
fomc | 2,003 | Do you mean in the event that we are forced to move to a point where we can no longer function using the federal funds rate? Are you referring to what we say at that point, or are you talking about now? | 45 |
fomc | 2,003 | I'm talking about now, Mr. Chairman, depending on where we move the funds rate. People are saying, even in these memos, that the effective zero rate is 50 basis points or that the money market funds would be affected if the funds rate gets to 75 basis points or lower. Therefore, questions are going to arise as to how w... | 82 |
fomc | 2,003 | I would suggest--and this is jumping the gun a bit on tomorrow's conversation--that if we move the funds rate down by 25 basis points tomorrow or if we make no change, you don't have to have that discussion. | 46 |
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