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Governor Ferguson.
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Thank you, Mr. Chairman. I can support both elements of your recommendation. As I said in my earlier remarks, I'm somewhat torn between two kinds of risk. But as I think about the outlook for this year, it seems to me that the economy could unfold very much the way it did in '95, '96, and '97. In that period we started...
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Governor Bies.
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Thank you, Mr. Chairman. I support your recommendation on the rate, and I am glad to see that the old language referring to a "considerable period" is going away. I can support the recommended wording change to "patience," but like President Moskow I would prefer not to use the "patience" language because we'll have to...
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Governor Olson.
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I support both parts of the proposal. But I would echo what Governor Bies and Mike Moskow said. Implicit with the introduction of the words "considerable period" was the need at some point for an exit strategy. And in my view even with the term "patience" we will need an exit strategy. But I agree with your unchanged r...
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President Minehan.
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Thank you, Mr. Chairman. I agree that there's no need to move policy now. The far more important issue right now is what we say about it. It has been clear from our discussion that risks are perceived on both sides of the Greenbook forecast--growth and inflation. Some believe we could be surprised on the upside with bo...
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President Pianalto.
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Thank you, Mr. Chairman. I support your recommendation on the rate and also on the change in language. I welcome the removal of the "considerable period" reference because, as I said earlier, I would prefer to be silent on any future policy actions that the Committee might take. In that regard I would also have to agre...
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President Guynn.
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Mr. Chairman, I support your recommendation. I do think the new language is a nice recalibration of our signal. It is an exit strategy that is thoughtful and gentle, and in that regard it makes sense. When Ned was talking about calling in the fire trucks, I was thinking that we had already planned to do that, but we se...
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President Santomero.
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I support your recommendation on the rate and also on the wording. In terms of the timing, at some level I could make a case that the weak jobs report makes it a little easier for us to take this step because it doesn't involve the anticipation of an immediate interest rate movement. As to the concerns about whether or...
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Governor Bernanke.
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Thank you, Mr. Chairman. I agree with the phase-out approach. I think it would be a mistake to drop this language suddenly. It would risk sending a signal that a tightening is imminent and creating an overreaction in the financial markets. So I support both your rate recommendation and your language recommendation.
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President McTeer.
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So do I.
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Vice Chair.
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So do I.
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President Broaddus.
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Mr. Chairman, I had my hand up rather quickly, although Norm didn't see it, because I was looking forward to supporting what I thought would be Don's recommendation to keep the "considerable period" language. But I can accept your recommendation. This is a tough issue, and I think you made some very persuasive argument...
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Let's get the draft statement distributed around the table. I assume everyone has had a chance to read it. Any questions, comments, or objections? President Minehan.
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I have no objection to this press release. I think it's a really good one. But I would just like to make a comment. Maybe it's because of the discussion yesterday or the way the Bluebook was lined out or the presentation today, but as a member of this Committee, I really feel better about the process we've gone through...
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If there are no further comments, I'll ask the Secretary to read the appropriate language.
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Starting with the directive wording itself: "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 ...
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Would you call the roll?
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Chairman Greenspan Yes Vice Chairman Geithner Yes Governor Bernanke
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Am I voting on the statement or the statement and the policy action?
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On both.
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On both. Thank you. Yes
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Governor Bies Yes Governor Ferguson Yes Governor Gramlich Yes President Hoenig Yes Governor Kohn Yes President Minehan Yes Governor Olson Yes President Pianalto Yes President Poole Yes
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May I interject? In fact, the Vice Chair has an interesting suggestion, so let me call on him.
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The third sentence in the second paragraph, which is the sentence about labor markets, now reads in the proposed text: "Although new hiring remained subdued, other indicators show an improvement in the labor market." I was just going to suggest that we replace "show" with "suggest."
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Yes, that's a good idea.
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I think that would be useful. Unless anybody disagrees, let's make that change in the statement. [Secretary's note: The change in question was not in the paragraph of the statement covered by the foregoing vote.]
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I have a note from Michelle about an issue that we should address.
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Here is the issue that has come up. The press and people in the market know that we had a Working Group on Communications and that we were going to discuss communication issues today. There was no secret as to what we would be talking about at this meeting. The press I suspect will be interested in knowing what came ou...
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I can get other copies. That one is for you.
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Okay. Here are some thoughts about what Michelle might say. I think we all want to provide a consistent message in our public comments. One question is whether we are going to be making some changes. Michelle proposes to say that the Committee considered a range of issues and has no new formulation to announce, which i...
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Why don't you just say it has completed its work.
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Or has been shot? [Laughter] Okay, it has completed its work. Finally, the hardest question is the one about releasing the minutes earlier. I think the safest thing is to say that we have made no decision on early release of the minutes because, in fact, we haven't yet made any decisions on that issue. Does anyone have...
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This is not an objection but a question. What about the role of projections? That issue has been in the press.
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Oh, it has? I don't recall that being in the press.
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Governor Bernanke in his ABA speech raised the possibility of increasing the frequency and the time period. I don't believe that people expected you to make a decision about that at this meeting, but we may get some questions about that. It would be a good idea for you to give me some guidance.
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Well, I think the answer is that we decided not to increase the frequency or change the time when we release the forecasts. But I think we can say that our policies will continue to evolve as we go forward with regard to exactly what we forecast. I think that's a fair statement of where we came out. Is anyone uncomfort...
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I would be inclined at least to emphasize that we recognize the importance of communication. My concern is that this sounds as if we're suggesting that our work on communication issues has been concluded. I don't have precise wording to suggest, but I think we want to emphasize that we will continue to look at issues o...
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I was about to raise the same issue. Also missing here is a statement that we actually had a very productive discussion.
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Right.
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In fact, we discussed this subject of communication for several hours and came to a number of conclusions. This makes it sound as though we couldn't agree on what page number we were dealing with.
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Well, I think just the opposite occurred.
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It was actually a very interesting and useful discussion about how we ought to communicate. And I think we will continue as is necessary to be involved in endeavoring to improve our communications as the economy and markets change.
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Mr. Chairman, the Committee did vote on the exact words of the press statement. If you intend to do that in the future, that is another piece of positive news that Michelle can relay. And that will be in the minutes.
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We didn't vote on the whole press statement.
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But you voted on the risk-assessment paragraph.
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We voted on that paragraph, yes.
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That strikes me as very much a question in intra-Committee dynamics, not a question of external communication. I'm not sure about the degree to which the markets are focused on what gets voted on and what doesn't.
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Well, at the last Bond Market Association meeting--or rather the time before--the significance of not voting on that wording was an issue that was raised.
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And I thought the way we handled that was to say that it just happened.
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After you work through all of these pieces, can you make sure everyone of us gets a script, if you will, from this so we know what's out there and what isn't about what we concluded?
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Yes.
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They're going to come at us in different directions, so I think it's important that we have some uniform way of talking about what we have concluded.
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I would hope that we can get this draft redone and circulated to everybody relatively quickly.
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President Minehan.
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We did have a rather extensive discussion yesterday on whether or not we should parallel test, with some work involved on both the staff side and our side, the earlier release of the minutes just to see how it goes. I don't have a single problem with not telling anybody that. In fact, my own view is that that's the sen...
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That's why we need that document.
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Let's ask Michelle her view.
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I think if we did announce that you were conducting a parallel test, you would be forced to release the minutes early.
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That's what I think.
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I would recommend that the Committee not say anything about parallel testing and give yourselves an opportunity to see how that process works. You could then choose whether or not to make a comment.
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I agree with that.
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This is one of those cases where, once we move in a direction, we cannot move back.
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I know.
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And announcing that would actually be a move in a direction. We don't have the luxury to say we're contemplating doing something like that and then say we made a decision not to be transparent.
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Right. I think we learned our lesson about that last year. I really do think that we need to agree not to talk about this because, if we talk about it, then parallel testing doesn't do us any good.
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It is regrettable I must say, but unfortunately that is an accurate statement.
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Well, I presume that decision, which was taken yesterday, is covered by all the security and confidentiality rules that cover all these kinds of issues.
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I hope so.
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So that's the point in trying to be clear about what we are saying and what we're not saying.
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Could I just raise another approach? Maybe you won't like it. But if Michelle gets asked about this, could she just say that it will be dealt with in the minutes?
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I don't believe so. I think you all will experience some pressure from the media and the public. And I think this issue will come up in the Chairman's Monetary Policy Report testimony. Reporters in the last week were saying that they expect some announcement at this meeting on the conclusion of your efforts in this are...
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The next meeting is March 16. Dave Stockton is available to accept revisions on your forecasts up to the close of business Friday. Let us go to lunch.
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Good morning, everybody. The first item provisionally on the agenda was a discussion of the minutes of our January 27-28 meeting. But Michelle Smith is in the process of trying to shoot down a very peculiar headline in the New York Times, and she is writing something on that. So I'd like to postpone this agenda item un...
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It's two more than I know about!
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However, there is a restriction: One has to offset the other. We'll be feting you at lunch, hopefully, and obviously we wish you the best.
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Thank you.
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Let's turn to Dino Kos.
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1 Thank you, Mr. Chairman. I'll be referring to the charts that Carol Low just circulated. During the intermeeting period, markets fluctuated in response to somewhat tempered forecasts for economic growth. While some market segments appeared to be in a risk-reduction mode, others were in a risk-seeking mode. And in the...
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I noted in the chart on the Fed custody holdings of Treasury securities, shown in the middle panel on page 1, that there are a couple of periods of very significant rise. If one tries to compare them with the Japanese intervention data on page 4, it obviously doesn't square in the slightest. Indeed, it looks as though ...
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Well, there are a lot of moving parts here. The aggregate custody holdings are for all countries.
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Well, I assume the Japanese are dominant.
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In terms of the delta, Japan is obviously a key contributor. But there are a lot of major players and many ins and outs in these figures. Also for Japan, their cash has actually been rising over the last few months. That is published on their web site. I believe almost a quarter of their reserves, if I have my numbers ...
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Cash meaning deposits?
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Deposits, right.
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Where? In domestic banks or foreign banks? In dollars?
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In banks in dollars. So it's not that they are automatically buying dollars and immediately putting them into Treasuries. There has been a lag, and in fact that lag actually has been growing.
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I thought the lag was just two or three days.
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Well, it is if they are immediately buying securities. But again, if we look at their deposit data, we see that their cash has been rising, so they are not immediately putting all of their intervention dollars to work.
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Do the securities go into custody at the point of purchase?
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At the point of settlement.
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