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fomc | 2,003 | Thank you, Mr. Chairman. Sometime soon we'll be approaching a critical juncture in this policy cycle. Output appears to be growing rapidly, but employment has not yet begun to recover and inflation so far is quiescent. The crucial question is, At what point should we begin to tighten? There are important risks in both ... | 779 |
fomc | 2,003 | Vincent Reinhart. | 5 |
fomc | 2,003 | 3 Thank you, Mr. Chairman. I will be referring to the materials that were distributed during your break, which may seem as if it was a long time ago. [Laughter] | 38 |
fomc | 2,003 | Do you want to revise these charts? | 8 |
fomc | 2,003 | I guess I could update the financial market quotes by now! As Dino has already related, the message from financial markets about today's meeting is fairly straightforward. As indicated by the path of the expected federal funds rate in the top left panel, investors apparently anticipate that the Committee will stay with... | 2,024 |
fomc | 2,003 | Questions for Vincent? If not, let me proceed. As I listened to the comments around the table, I noted something that is self-evident in a way but that we really ought to think about. I observed that the correlation between the regional reports at the previous meeting and those at this meeting is extraordinarily high a... | 1,315 |
fomc | 2,003 | I'm about 0 for 27 in suggesting changes. | 11 |
fomc | 2,003 | That's not true. You had a single the last time! | 12 |
fomc | 2,003 | I'm 1 for 27. In the last sentence, I don't think we need the word "considerable." I think the sentence could be written more simply with something like this: "In these circumstances, the Committee believes that policy accommodation can be maintained until disinflationary forces are contained." | 60 |
fomc | 2,003 | But that's different from this draft in the sense that I'm using the term "considerable period" so it's not changed and then redefining it. What you're doing involves moving faster than I think is wise to do. | 43 |
fomc | 2,003 | Okay. I see your point. The complication is that this is a very ungainly sentence, but I do see your point. | 27 |
fomc | 2,003 | We've used such sentences before. Is that okay? | 10 |
fomc | 2,003 | I still like my sentence better, but I see your point. I'm not going to make a big issue of that. | 24 |
fomc | 2,003 | One for 28! | 5 |
fomc | 2,003 | But who's counting? | 4 |
fomc | 2,003 | Governor Ferguson. | 3 |
fomc | 2,003 | Let me continue the usual tradition by commenting first on your three-part recommendation and then I'll talk about the statement. First, I think you're right that we shouldn't move the funds rate. While I am always influenced by the chart that shows the current funds rate versus the real equilibrium rate, I think finan... | 452 |
fomc | 2,003 | President Minehan. | 4 |
fomc | 2,003 | I'm obviously in agreement with your recommendation on the funds rate. Actually, I don't see any alternative to keeping the language on the risks--the risks to sustainable economic growth, the risks of inflation, and the balance of risks--the same as the last time. Not enough has changed. Growth is clearly a little str... | 221 |
fomc | 2,003 | President Poole. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I certainly support the recommendation that we keep the funds rate where it is. Let me try not to get into the wording issue but discuss what in my view is the substance. First, I want to talk about the probability distribution rather than just the word "risk" for the moment. On the inflation r... | 345 |
fomc | 2,003 | May I make a suggestion? You know, that's not bad phraseology for our statement two meetings from now. That's where we are going. I just don't think we gain very much by moving in that direction too soon. In fact, I'm sure that we probably lose something. But keep that phraseology in mind. That's not a bad way to say w... | 74 |
fomc | 2,003 | I won't destroy my notes as I usually do after each meeting. | 13 |
fomc | 2,003 | President Parry. | 4 |
fomc | 2,003 | Mr. Chairman, given the strength of the economy that we see, at least on the basis of the most recent data, I support leaving the funds rate at 1 percent. However, even with the expected pickup in growth, there's an uncomfortably high risk that inflation may move lower than would be desirable. Certainly in the Greenboo... | 224 |
fomc | 2,003 | President Santomero. | 5 |
fomc | 2,003 | Thank you, Mr. Chairman. I support your fed funds target and the balance of risks--the risk assessments, if you will--as stated. Frankly, if I had my druthers I would wait one more meeting before I would change anything in the wording about policy accommodation being maintained for a considerable period of time. I'd co... | 136 |
fomc | 2,003 | Governor Kohn. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I support all the pieces of your recommendation. On the balance of risks statement, I agree to a large extent, though not entirely, with what President Santomero said, which was to change as little as possible in that statement. I would reserve these changes until we agree on what we mean by th... | 429 |
fomc | 2,003 | President Hoenig. | 4 |
fomc | 2,003 | Mr. Chairman, I agree with leaving the funds rate target unchanged at this meeting. My own view is that we are in an environment where we're close to price stability, with low and stable inflation, and I think the risks are balanced. I will tell you that trying to figure out what to say in this statement right now make... | 136 |
fomc | 2,003 | First Vice President Stewart. | 5 |
fomc | 2,003 | Mr. Chairman, I support your recommendation. In my view the recovery still is fragile in terms of employment and the business psychology. I think it's too early to start an exit strategy from our statement about our accommodative policy being maintained for a considerable period of time. I have no regrets about having ... | 73 |
fomc | 2,003 | President Stern. | 3 |
fomc | 2,003 | Thank you, Mr. Chairman. I certainly support leaving the federal funds rate target at 1 percent. As for the other issues, the overriding concern in my mind is the potential reaction in the marketplace. I will say a bit more about that in a minute. Because of that I feel rather constrained as to what we can or should do... | 240 |
fomc | 2,003 | President Pianalto. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I support your recommendation on the federal funds rate target and your recommendation on retaining the balance of risks statement as it is currently. As I said last night, though, I am uncomfortable about signaling our future policy actions in our statement and, therefore, at the August meetin... | 99 |
fomc | 2,003 | President Guynn. | 4 |
fomc | 2,003 | Mr. Chairman I support no change in the funds rate target. I remain concerned about striking a better balance of risks statement, but that's not something we can deal with today. I hope we will keep in mind a fundamental review of that. I also like the idea of trying to find an exit strategy. I've read the new final se... | 262 |
fomc | 2,003 | I must tell you that I'm listening to all of this, and I agree that it is an awkward statement. Essentially there are really two choices. One, we can literally stay with exactly what we had in our previous statement and try to figure out another form of exit strategy. Or two, we can go with the proposed new language. B... | 109 |
fomc | 2,003 | Mr. Chairman, I support no change in the funds rate, and I support the balance of risks recommendation. On the last sentence, I do think we need an exit strategy, and in my view this is a reasonable one. But I don't see the urgency to do it today that Governor Kohn does and others may. I would be very comfortable just ... | 78 |
fomc | 2,003 | You weren't raising an urgency of doing it today, were you, Don? | 15 |
fomc | 2,003 | No, I was just saying that I supported the additional wording because it sets us up for a future meeting. So I'm not urging-- | 27 |
fomc | 2,003 | You're supporting the sentence as proposed? | 7 |
fomc | 2,003 | Right. | 2 |
fomc | 2,003 | Right, that's what I thought you said. But what I'm saying is that I would leave the sentence as it was last time; that would be my preference at this point. I think this kind of wording might provide the exit strategy we will want to use, but I don't see any urgency to adopt it at this meeting. I would prefer to wait ... | 321 |
fomc | 2,003 | Well, I hope you're right. President Broaddus. | 12 |
fomc | 2,003 | Mr. Chairman, I'm fine on the funds rate target and on the substantive aspect of the balance of risks. But on the press release statement I'm very much in Jack Guynn's camp. He expressed my concerns very well. I just don't know how this additional language is going to be interpreted. I've been trying to think about tha... | 295 |
fomc | 2,003 | Governor Bies. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I support your recommendation to keep the fed funds target rate at 1 percent. At this time I still am quite concerned about the downside risk on inflation, mainly because of the forecast in the Greenbook and my belief that the productivity story is still being written. However, like others who ... | 193 |
fomc | 2,003 | Governor Olson. | 3 |
fomc | 2,003 | I support both parts of the recommendation. Regarding the last sentence, I think the phrase that it is important to retain is "considerable period." The phrase that I think is going to get a lot of attention is "to foster the containing of. " It will likely be the focus of attention just because it is awkward. It would... | 116 |
fomc | 2,003 | President McTeer. | 5 |
fomc | 2,003 | I'm okay with your recommendation. | 6 |
fomc | 2,003 | Governor Bernanke. | 4 |
fomc | 2,003 | I accept the policy recommendation. On the last sentence of the press statement, my preference would be for this meeting to leave it as it was before--because I think that's the safest thing to do--and to change it next time. I'd like to add my voice to President's Poole's suggestion of wording that was something to th... | 173 |
fomc | 2,003 | When we eventually get to that point, I think that's where we'll be in terms of conveying our assessment of the situation. | 24 |
fomc | 2,003 | In any event, I think that might be a good way to go. | 15 |
fomc | 2,003 | Yes, we start by getting the first difference, and then when we get to zero, we meld into it the concept of muted risks to inflation. | 30 |
fomc | 2,003 | Well, if you start with the first difference then you might get an expectation in the market that we're going to begin tightening at some early point, say, just when the difference changes. | 37 |
fomc | 2,003 | Well, that depends in part on how we change the statement as we go forward. That is the reason I thought the issue of the stress-test that Mike Moskow was raising last night was the right one. Governor Gramlich. | 46 |
fomc | 2,003 | Let me just propose another strategy here. It's quite possible that by next month we're going to have balanced risks. If that is the case, then we're going to have to do a lot with this paragraph. This sentence could just drop by the wayside at that point, and it would be one of many changes in the statement. So, we co... | 160 |
fomc | 2,003 | That is a good argument. President Hoenig. | 10 |
fomc | 2,003 | Mr. Chairman, listening to this discussion, I want to say that I very much agree with those who say we should leave this wording absolutely the same as it was last time. | 36 |
fomc | 2,003 | That's where I'm coming out as well, I must tell you. | 13 |
fomc | 2,003 | Keeping it the same tells the market something right there. It means that we don't want to change anything, and market observers will begin to think about the fact that we'll be backing off in the future. I think that will take us a step forward in an exit strategy. | 54 |
fomc | 2,003 | On this issue I think the argument for doing nothing has won the day. There's also another marginal issue here. The data for the last week or two are not incorporated in the forecast presented in the Greenbook. There's a somewhat edgy element in those data, which I will grant you is more consistent with leaving the sta... | 172 |
fomc | 2,003 | It's on page 10 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 maintaining... | 155 |
fomc | 2,003 | I want to make sure that the changes in the second paragraph in the statement are acceptable. Is that correct? Nobody has commented on them. Also, in the third paragraph we have said "remains" the predominant concern rather than "is likely to be" the predominant concern. Is that acceptable to everybody? Does everyone k... | 111 |
fomc | 2,003 | Chairman Greenspan 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 First Vice President Stewart Yes | 49 |
fomc | 2,003 | Our next meeting is October 28. Let me just say that I will be appearing before the House Budget Committee before then. If it turns out that there is a need for us to communicate something officially, I could do it then, having preceded it with a telephone conference of the Committee. I don't think that will be necessa... | 113 |
fomc | 2,003 | We're ready to start our meeting. Would somebody like to move the minutes of the September meeting? | 19 |
fomc | 2,003 | I'll move the minutes of that meeting. | 8 |
fomc | 2,003 | Thank you. Without objection they are approved. Dino, you're on. | 14 |
fomc | 2,003 | 1 Thank you, Mr. Chairman. I'll be referring to the charts that were circulated a short while ago. During the first part of the intermeeting period, market participants looked at incoming data and concluded that the glass was half empty. Then for most of October, they tended to see the glass as half full. Interest rate... | 2,171 |
fomc | 2,003 | It looks as though each of the two types of intervention operations had some modest effect on the exchange rate and, when combined, that disappears. Do I infer from what you're saying that the two earlier MOF regimes actually had some modest effect on the exchange rate but the combined method did not? | 58 |
fomc | 2,003 | Well, I'm not sure I would go that far. | 11 |
fomc | 2,003 | I knew you wouldn't! [Laughter] | 9 |
fomc | 2,003 | Academics have long argued about the effect of intervention. Certainly the size of the Japanese intervention has been incredible this year. | 24 |
fomc | 2,003 | It's even arguable as to whether it's sterilized. | 11 |
fomc | 2,003 | That's yet another set of issues. Nevertheless, the rate is about 12 yen lower than it was at the end of last year despite this very, very large intervention. Compounding the situation is the question of whether the intervention is sterilized or not. | 51 |
fomc | 2,003 | I've been wondering out loud recently whether the extraordinarily significant bias on the part of commercial banks and households in Japan not to engage in a significant way in the purchase of foreign assets--far more so than is true in the world at large--is a factor. Does carrying that over into the international exc... | 119 |
fomc | 2,003 | I don't think I would argue with that. In fact, one of the points that commentators have made over the years is that, in the absence of the Japanese financial system being able to recycle these funds, it is left to the authorities, through intervention, to do that. Even so, the scale of this year's intervention is very... | 95 |
fomc | 2,003 | My second question relates to the issue of how the foreign exchange markets are functioning. There is considerable bias in forecasts currently toward a weaker dollar, largely as a consequence of the rising U.S. current account deficit. Yet we're all taught, and the markets seem to suggest, that the spot rate captures a... | 205 |
fomc | 2,003 | I have watched foreign exchange markets for about eleven years, which is nowhere near as long as you've been watching them, and I would never want to forecast exchange rates because it seems so impossible to do. So that's my first point. On your second question--whether the spot rate captures all the information that i... | 88 |
fomc | 2,003 | Well, I'm foolishly going to offer to say something on this subject! [Laughter] The dilemma with the arbitrage reasoning that you have accurately laid out is that one end or the other of the term structure of exchange rates implied by it needs to be nailed down in some way for that by itself to tell you where the spot ... | 130 |
fomc | 2,003 | Algebraically I don't necessarily agree with you. In other words, let's say we have an aggregate supply and demand for a commodity--the reasoning works the same way for a commodity--with segregation with respect to the time frame. There is a sense in which the aggregate supply and demand equate to get an average price,... | 86 |
fomc | 2,003 | But the magic term is "aggregate supply." What pins down the aggregate supply of a currency? | 19 |
fomc | 2,003 | I'm not saying what pins it down; I'm just saying that it exists. Algebraically you have enough observations to solve the problem. | 26 |
fomc | 2,003 | In real time on a given day, at a particular minute, a certain supply exists and the price equates demand to it, yes. | 28 |
fomc | 2,003 | That's all I'm saying. | 5 |
fomc | 2,003 | But in an attempt, based on theoretical reasoning, to determine what shocks should do to that system or what the future rate should be and so forth, the issue is that the supply of a currency has no economics behind it. The supply could be anything. | 51 |
fomc | 2,003 | I don't know what those words mean. | 8 |
fomc | 2,003 | There are no parameters of a supply curve that are driven by incentives as there would be, say, if we were talking about the price of lumber in a year. For example, one can think about the reasoning behind the actions of the people who buy lumber and of the people who sell lumber. And one could, rightly or wrongly, wri... | 83 |
fomc | 2,003 | Well, I'm just saying that there is a futures price for lumber. And I would submit that all along the curve of the futures market for lumber is in effect an arbitraging operation, which is fixed at a level that encompasses the aggregate demand and supply all the way out on the futures curve. | 59 |
fomc | 2,003 | But recall that each exchange rate involves two currencies. So in the case we're discussing, one is implicitly talking about the supply of dollars and the supply of yen. While a certain supply exists in calendar time at this moment, nothing predetermines the supply of either currency going forward. Both of those variab... | 76 |
fomc | 2,003 | I acknowledge that the markets can't predict; that's the problem. But unless somebody insists that this issue is important to the decision we have to make today, [laughter] I think you and I should go in the corner of the room later and argue this out with each other. | 56 |
fomc | 2,003 | Wise suggestion. | 3 |
fomc | 2,003 | That's all I have. Does anybody else want to ask a question? | 14 |
fomc | 2,003 | If one thinks of the Japanese authorities as speculators, it's generally assumed that if speculation is stabilizing it's profitable. If it's not profitable, it's destabilizing. Do we know anything about how much money the Japanese have earned or lost on these interventions? | 50 |
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