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fomc | 2,003 | Right. | 2 |
fomc | 2,003 | We need to reach some agreement on that. I'm not trying to say that we can come to an agreement here today. But I think some people want to provide that hint about the likely direction of policy. I did when I first came here. But I've changed my mind in living through issuing these statements as to whether or not those... | 71 |
fomc | 2,003 | Governor Bernanke. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I'm happy to wait until January if that's what people want to do. I would like to express a mild preference--more than a mild preference--for Governor Gramlich's formulation. I think it's important to have benchmarks. Our current statement and both of the suggested statements have benchmarks in... | 300 |
fomc | 2,003 | Actually, that option should be on the table. Where I have a problem with what you're saying is this. The notion that disinflation is unwelcome at this juncture is a value judgment all of us share. As I indicated to Ned, if we all agree that the desirable level of unemployment is X, then that's in the same category. If... | 152 |
fomc | 2,003 | Thank you, Mr. Chairman. I certainly agree that we need to clarify the language, and we're not going to get it done today. We could very well make it until next January, though I think we would need to work on it in December as well and not leave it all for January. I started by asking what our goal was, and I think I ... | 662 |
fomc | 2,003 | President Broaddus. | 5 |
fomc | 2,003 | Mr. Chairman, the first thing I would say is, Jack, when you eat an oyster you really ought to chew it. That's what brings the flavor out. [Laughter] When I think about communication, to me what makes a communication good is that it's direct, clear, and understandable. On that score, Ned's suggested wording has a lot t... | 378 |
fomc | 2,003 | President Minehan. | 4 |
fomc | 2,003 | In preparation for this discussion I reread the verbatim transcript of our dinner meeting last month. It was very interesting and informative. I realized how much I miss sometimes when I'm thinking about what I want to say as opposed to what other people are saying. I was one of the people who at that time did not want... | 278 |
fomc | 2,003 | But we're the 800-pound gorilla in the market. | 12 |
fomc | 2,003 | Well, I know we're the 800-pound gorilla, but I think we should avoid a commitment about the future. We should clearly avoid any sense--and somehow try to correct the belief--that we sit around this table trying to figure out what the markets are likely to do and what we're going to say to make them do something differ... | 300 |
fomc | 2,003 | Governor Olson. | 3 |
fomc | 2,003 | Well, working backward, I also would be in favor of taking our time on this because I do think it's important. I don't think we have any reason to rush. I found the Gramlich memo appealing but for a reason that I haven't heard stated, and that is that maximum sustainable employment and low inflation are our public poli... | 284 |
fomc | 2,003 | But he goes far beyond what you just said. | 10 |
fomc | 2,003 | Does he? | 3 |
fomc | 2,003 | He has specific numbers. We just voted on instructions to the Federal Reserve Bank of New York in which we used exactly the kind of language you're talking about. In fact that happens to be an issue on which we all agree. So we can use that sort of language. But I think Ned is trying to get something more specific than... | 115 |
fomc | 2,003 | I guess I didn't read it that way. | 9 |
fomc | 2,003 | Ned, am I misinterpreting what you said? | 12 |
fomc | 2,003 | I think so. | 4 |
fomc | 2,003 | Well, then tell me what I've said wrong. | 10 |
fomc | 2,003 | I don't see anything in here that commits us to any specific goal on either the inflation side or the unemployment side. This actually replaces the statement that growth has to proceed at a stable rate. All it says is that growth is proceeding at a rate that in our view is consistent with the eventual--and maybe we oug... | 142 |
fomc | 2,003 | Well, the question is whether in fact in the real world that is capable of being achieved. | 19 |
fomc | 2,003 | Yes, that's an issue. Believe me, I understand that. | 13 |
fomc | 2,003 | Okay, I withdraw my negative comment. President Moskow. | 12 |
fomc | 2,003 | I'll make a different negative comment then, Mr. Chairman. I am concerned about having a maximum sustainable employment objective. I don't really mean that it's not an objective--obviously we all agree that it's in the statute--but I would not put it in the statement. I find it difficult to envision a circumstance in w... | 381 |
fomc | 2,003 | That would solve a lot of problems. | 8 |
fomc | 2,003 | That's right; and we could just drop this language completely. I think it's worth seeing what the logistics of an early release of the minutes really are. We talked about that possibility, and I know it would put a lot of pressure on the Board staff to draft the document and on all of us to review it. But I think it's ... | 199 |
fomc | 2,003 | The obvious problem is that if we release the minutes earlier we'll find that the whole Committee is going to want to get involved in editing them. Theoretically, in my judgment, earlier publication of the minutes is the ideal solution to our communication dilemma if we could find a way to ensure that we can produce a ... | 167 |
fomc | 2,003 | We have to address the issue of whether we would get the same kind of product as we do now. | 21 |
fomc | 2,003 | Yes, that's correct. That's the issue. Nevertheless, the minutes are not bad now. I think they do describe conceptually what we are doing. | 30 |
fomc | 2,003 | Mr. Chairman, in answer to President Moskow's question, I would make one observation. The Bank of England is the model for this approach, and they get their minutes out in two weeks. They also have the advantage that everybody in the policy group is in the same building, so they sit down and devote a half-day to editin... | 184 |
fomc | 2,003 | If we could find a way to group the members into a constant alignment of similarly minded people, each group could assign one person as a representative to the editing committee. Then we could have a small group of people sitting around editing. I wouldn't suggest that that's about to happen. | 55 |
fomc | 2,003 | I think your next Secretary, Mr. Chairman, will have a challenge. [Laughter] | 19 |
fomc | 2,003 | Would the proposal be not to have any statement after a meeting even if we change policy? Would we let everything ride until we publish the minutes? If we're going to have a statement anyway, we're still going to have a struggle with the wording of a statement. | 52 |
fomc | 2,003 | I would drop the balance of risk part and have the statement be only this first paragraph regarding what we've done. | 22 |
fomc | 2,003 | We'd stipulate what action we took. | 9 |
fomc | 2,003 | Well, that's easy, if there's no explanation. | 10 |
fomc | 2,003 | There's going to be an explanation, two or three sentences. | 12 |
fomc | 2,003 | There will be an explanation but not a balance of risks statement. | 13 |
fomc | 2,003 | Yes, we'll have just the first paragraph of the press release but not the second paragraph. | 18 |
fomc | 2,003 | Yes. | 2 |
fomc | 2,003 | By the way, as author of the eloquent version of the second paragraph, I would be perfectly happy to have that all supplanted by the minutes if there is a way to do it. | 39 |
fomc | 2,003 | Well, we really ought to explore that. | 9 |
fomc | 2,003 | We are preparing a document on the early release of the minutes. | 13 |
fomc | 2,003 | Why don't you try to do the minutes earlier for this particular meeting? [Laughter] This is the easiest meeting for which you'll be able to do minutes. It will give you the baseline of how close you can get to an actual implementation of the early release option. | 54 |
fomc | 2,003 | Is this the stress test? [Laughter] | 10 |
fomc | 2,003 | Of whom? | 3 |
fomc | 2,003 | Count the years to retirement, Vincent! | 8 |
fomc | 2,003 | The minutes could say, "Following lunch, a vigorous discussion ensued with respect to communications." [Laughter] | 23 |
fomc | 2,003 | We're running out of allocated time at this particular moment. May I suggest, in order to move this process forward, that in conjunction with the Secretariat, we will appoint a committee of Governors and Presidents--an estimable group if they wish to join--and see whether or not we can at least narrow this down. We act... | 123 |
fomc | 2,003 | But there are problems in doing that. Maybe we can learn some things from the British experience and find a mechanism that will enable us to succeed in accomplishing that. One possibility--I'm just throwing ideas out in the air--is that at the late January meeting, when we vote on a number of things, we could vote on a... | 378 |
fomc | 2,003 | I don't know the answer to that, Mr. Chairman. I suspect it's related to the fact that the tape recording equipment is in this room. But that is something that we can address. | 38 |
fomc | 2,003 | I venture to say that there's a solution to that. We are approaching the bewitching hour, and to make sure that Michelle does not tell a falsehood about when our meeting ended, we're going to have to bring this session to a close. Regrettably, I have on my list five people who wanted to speak and were not able to do so... | 118 |
fomc | 2,003 | Welcome. I trust you've brought all of your wisdom with you. If not, go home and get it! [Laughter] Who would like to move approval of the minutes of our October 28 meeting? | 42 |
fomc | 2,003 | I'll move the minutes of October 28. | 9 |
fomc | 2,003 | Without objection they are approved. The next item is the election of a Vice Chair. Governor Ferguson. | 20 |
fomc | 2,003 | My nomination for a new Vice Chairman of this Committee is Timothy Geithner, the President of the Federal Reserve Bank of New York. | 27 |
fomc | 2,003 | Is there a second? SEVERAL. Second. | 11 |
fomc | 2,003 | Is there opposition? [Laughter] Congratulations! As you've observed, the democratic process has worked without a flaw. Let's turn to Dino Kos. | 29 |
fomc | 2,003 | 1 Thank you, Mr. Chairman. I'll be referring to the package that was circulated a short time ago. The intermeeting period was characterized by generally stronger data both in the United States and abroad but with a divergence of views about what that implied for near-term movements in interest rates. In addition, the d... | 1,645 |
fomc | 2,003 | The domestic credit markets have been rather tranquil despite what is presumed to be a significant shift in the propensity of foreign holders to purchase U.S. assets. I assume that implies either that markets saw rates going down and have been supportive of that or that the sensitivity of market interest rates to the s... | 121 |
fomc | 2,003 | I'm not sure that I have a third. The way I would tend to look at it is that, to some degree, official holdings have had to fill in the gap to the extent that officials elsewhere have made a policy choice not to let their currencies appreciate. Now, exactly how that relates to the substitutability of domestic assets-- | 67 |
fomc | 2,003 | That's the crucial question. | 5 |
fomc | 2,003 | Yes, and that's the unknown. I don't have a way of quantifying that. I agree with you that it is the crucial question, but all we can see is the end result. Exactly how we got there is the more difficult question, and I'm not sure I can give you an answer that would be robust and would make sense in a full-scale econom... | 75 |
fomc | 2,003 | Further questions for Dino? | 5 |
fomc | 2,003 | May I ask one? | 5 |
fomc | 2,003 | Sure. | 2 |
fomc | 2,003 | We had a brief discussion yesterday at our Board meeting about the equity risk premium. It seems to be relatively wide, even somewhat wider than historically normal. It's not on your charts, but you mentioned the equity markets. Do you have a point of view about why it is that the equity risk premium seems relatively h... | 87 |
fomc | 2,003 | I think the answer is "no"--I don't have a view going forward. Certainly, there's a lot of discussion in the markets--if one looks at what is going on in the junk bond market, for example--that low interest rates and the perception of abundant liquidity have helped to support risk assets be they high-yield bonds or equ... | 110 |
fomc | 2,003 | I would point out, Governor Ferguson, that financial economists refer to observed equity premiums historically in the neighborhood of 500 to 600 basis points as the equity risk premium puzzle. The fact that it's now a little high in the range that has prevailed over the last decade doesn't put it well out of the range ... | 113 |
fomc | 2,003 | Okay, thank you. | 5 |
fomc | 2,003 | Governor Bernanke. | 4 |
fomc | 2,003 | On page 3 of your charts you juxtapose the declining dollar with the positive interest rate differentials with our major trading partners. The obvious question is why hasn't there been a sharp decline in the dollar followed by an expected appreciation of the dollar given the interest rate parity condition. How is holdi... | 79 |
fomc | 2,003 | Well, that's an excellent question. The way I tend to look at it is that we have a current account deficit and that deficit has to be financed somehow. The cost of financing that deficit can rise or fall at any given point in time. One way that the cost of financing can rise is that we have to offer higher rates to att... | 183 |
fomc | 2,003 | It's a puzzle. | 4 |
fomc | 2,003 | It's a puzzle absolutely. | 5 |
fomc | 2,003 | A fairly significant amount of international holdings are tied to the dollar--I'm now talking about China in its current development stage. Do you have any evidence that that creates a more volatile exchange rate adjustment process for floating rates against the dollar? Theoretically, if 95 percent of the world's curre... | 82 |
fomc | 2,003 | If I may? I would note that the mechanism by which the 95 percent are tied to the dollar is in some sense the willingness on the part of the holders of those currencies to provide the financing. So the job left for the other 5 percent to do would be considerably smaller than in another set of circumstances. | 64 |
fomc | 2,003 | I think that is certainly a good point. Nonetheless it's hard to believe that you wouldn't get significant volatility. If you don't like 5 percent, try 1 percent, and I'm sure you'd get a lot of volatility. | 44 |
fomc | 2,003 | Right, but as I said, the financing need would be so much smaller. | 16 |
fomc | 2,003 | I think that's a good point. | 7 |
fomc | 2,003 | Okay. Any other questions? | 6 |
fomc | 2,003 | Presumably part of the answer there is that the capital flows of private investors have declined substantially. A lot more of the capital flows are official than was the case last year or the year before, and official capital flows are not motivated by the same rate-of-return considerations that private capital flows a... | 168 |
fomc | 2,003 | I have a question for you. Suppose their capital is negative. Does it matter? | 17 |
fomc | 2,003 | Well, I think there are two questions. One question is whether it matters to the economist; the other is whether it matters to the market. I think I know the answer for the economist. I'm not sure I know the answer for the market, and that's why I asked the person who knows. | 60 |
fomc | 2,003 | As I'm sure you know, the Federal Reserve has continuously given away its surpluses for political reasons if for no other reason. | 26 |
fomc | 2,003 | We have this issue potentially as well. Our issue is complicated a bit--or differs from the issue in Japan--because we have member banks that are shareholders and I think that under the law the member bank capital is actually at risk under the Federal Reserve Act. I'm asking the question particularly for Japan, but it ... | 69 |
fomc | 2,003 | I don't have the specific number, but I believe about 10 percent of Japan's overall reserves are held at the central bank. | 26 |
fomc | 2,003 | Of dollar reserves? | 4 |
fomc | 2,003 | Of their overall reserves. | 5 |
fomc | 2,003 | The rest is in the Ministry of Finance. | 9 |
fomc | 2,003 | The rest is in the Ministry of Finance. All of the intervention-related activity is by the Ministry of Finance. The bigger risk to the Bank of Japan's balance sheet is probably their holdings of government securities at interest rates of zero and credit risks based on borrowings from the Bank by some lower-rated entiti... | 79 |
fomc | 2,003 | Well, there was an article in the Financial Times. That article also pointed out something that I thought was quite interesting. It said that the Bank of Japan is moving away from valuing its balance sheet on a current market value basis and toward valuing it on an amortized original cost basis. That, of course, would ... | 93 |
fomc | 2,003 | Exactly what the market would do with any particular situation is hard to predict. But in cases where some other central banks have had low or even negative capital positions there hasn't been any material effect that I can think of. Mexico, for example, had this problem recently when its capital account was depleted. ... | 109 |
fomc | 2,003 | Further questions for Dino? Would somebody like to move the ratification of the domestic policy actions? | 19 |
fomc | 2,003 | I'll move ratification. | 5 |
fomc | 2,003 | Without objection. Thank you very much. Let's move on to Dave Stockton and Karen Johnson. | 18 |
fomc | 2,003 | Thank you, Mr. Chairman. As I sat down to deliver my briefing at the last FOMC meeting, I was feeling pretty good. After all, the sizable acceleration in aggregate output in the second half that we had been projecting for some time seemed to be materializing. Even the more controversial aspects of our forecast--a picku... | 2,822 |
fomc | 2,003 | With respect to economic activity abroad, our basic message for you this meeting is that the rebound in activity that we have been forecasting for some time has been confirmed in production and spending data for the third quarter. Indeed, we were sufficiently surprised by the strength of this rebound, primarily in emer... | 1,338 |
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