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fomc | 2,004 | I'm sorry, I meant at the point of settlement. So it's not an issue of their purchasing a security, taking it home, and then sending it back, so to speak. They purchase it, and at settlement it goes into custody as a book entry item, and that's it. | 57 |
fomc | 2,004 | Exactly. Again, though, one of the missing pieces is how much of their dollar purchases are staying as deposits rather than going directly into securities. | 29 |
fomc | 2,004 | On the bottom chart of page 1, everybody uses that spread between the ten-year note and the three-month bill. But what the comparison in that chart is supposed to capture is better captured by using a one-year maturity nine years out because clearly the ten-year note is picking up an average of everything from one day ... | 113 |
fomc | 2,004 | Yes, this is used because I think people tend to be more familiar with this relationship. I was not trying to be precise, but I wanted to show that there is a sense in which the people who have been saying that yields ought to be a lot higher are really fighting this in part. That is, the spread is so high that-- | 69 |
fomc | 2,004 | The spread is actually 5 points, not 3. | 12 |
fomc | 2,004 | The contours of the chart would be the same if one used the ten-year-ahead forward rate less, say, the one-year-ahead forward rate. The amplitude would be higher, and the spread would wind up at something like 5 1/8 percent. | 54 |
fomc | 2,004 | In the short term it would be, but not as the slope of the yield curve changes. The spread is affected by that slope. The point is that what you're trying to measure here is being muddied by the fact that the numbers are already partially in the numerator. With respect to the chart at the bottom of page 3, those IMM co... | 109 |
fomc | 2,004 | Well, that's a good point. In the interest of full disclosure, I must say that I put the euro in there just to point out that there wasn't a universal response from this group. Now, one of the anecdotal stories that we keep hearing is that there's a group of market participants--if not hedge funds then CTAs and model-d... | 132 |
fomc | 2,004 | Yes, it looks as though 100,000 contracts just got--is it yen delta hedging? It's curious. | 24 |
fomc | 2,004 | It was a dramatic move. Again, it seemed to be very much a position-adjustment story, and that was the point I was trying to convey. It seemed to be a change driven not by fundamentals but by technical factors--and those technical factors were most powerful in the yen. | 57 |
fomc | 2,004 | Other questions for Dino? President Minehan. | 9 |
fomc | 2,004 | Thank you, Mr. Chairman. Dino, I was intrigued by your thoughts regarding the beginning of a risk-reduction phase. How strongly do you feel about that? I may be slightly behind the curve in terms of the way market participants are looking at this; but from people in the investment business around Boston, I seem to be g... | 79 |
fomc | 2,004 | Yes, we're really seeing some crosscurrents. On the one hand, if we talk to people who are active in, say, Treasuries, we hear a lot about the carry trade and about an expansion of risk and leverage. | 48 |
fomc | 2,004 | Right. | 2 |
fomc | 2,004 | On the other hand, there are pockets where risk-reduction moves do seem to be occurring--where people have had some losses and then reduced their other positions. It's not universal. This may be a very short-term phase that was localized or limited to a couple of market segments. We may not be talking about this in the... | 85 |
fomc | 2,004 | Thank you. | 3 |
fomc | 2,004 | Governor Kohn. | 4 |
fomc | 2,004 | I wondered if you had any more thoughts on the dollar, Dino. The dollar's rise is rather surprising given the disappointing data we've had on the U.S. economy and the decline in U.S. interest rates. Do you have some sense that attitudes have changed from the pervasive expectations of further declines? Or is this the en... | 66 |
fomc | 2,004 | Well, explaining exchange rates is always a risky business. The rebound in part seems to have been technically inspired. It's hard to pinpoint, but I think a number of things were going on that had some effects. I didn't spend much time talking about economic developments in Europe, but there has not been as much of an... | 226 |
fomc | 2,004 | President Poole. | 4 |
fomc | 2,004 | As I understand it, Mr. Chairman, someone has to move for approval of the Desk's transactions, and I'll volunteer for that duty. | 28 |
fomc | 2,004 | It's not a great burden, I hope! [Laughter] | 13 |
fomc | 2,004 | It's a lot easier than talking about the exchange rates. | 11 |
fomc | 2,004 | Any objections? Does anyone else want to speak before we close the questions? If not, I will accept your motion and assume, without objection, that the Desk's transactions are approved. David Stockton and Karen Johnson. | 43 |
fomc | 2,004 | Thank you, Mr. Chairman. As usual, we have received a mixed bag of data since the January FOMC meeting. Over most of the past six months, when we said "mixed" data, we generally meant data that were either stronger than we had expected or that were a lot stronger than we had expected. By contrast, during this intermeet... | 2,615 |
fomc | 2,004 | The staff forecast for economic activity abroad this year and next is one of moderately robust growth and contained inflation. This favorable picture reflects the rebound in the global high-tech industry as previous overinvestment has been worked off; the positive spillovers to the rest of the world of the expansion of... | 1,431 |
fomc | 2,004 | Do you have any breakout on foreign affiliate earnings in foreign currencies and the extent to which earnings are converted to dollars--resulting in much larger amounts of dollars at the prevailing exchange rate? | 37 |
fomc | 2,004 | I asked my staff if they could make that decomposition, and I basically got "no" for an answer. [Laughter] The dilemma is that we're talking about looking at this across all the different currencies and all the different-- | 46 |
fomc | 2,004 | There's a lot of hedging going on. | 9 |
fomc | 2,004 | I understand. And that is shifting a bit when this valuation effect shows up and when there were offsetting gains on the one hand versus losses on the other. Remember we're talking now about U.S. earnings abroad, not foreign earnings here. At any rate, the staff did not seem hopeful that they could disentangle the earn... | 109 |
fomc | 2,004 | I know you eventually get it, but at this stage do you have the foreign affiliate earnings by major geographic areas? | 23 |
fomc | 2,004 | I raised that question. I think what we'd have to do at this point is to look at annual reports or something. At some later point we may have those data. | 34 |
fomc | 2,004 | In other words, Commerce publishes the data but with a significant lag? | 14 |
fomc | 2,004 | Right. | 2 |
fomc | 2,004 | I ask because theoretically one could take the dollar earnings and literally convert them back to their foreign currencies. | 20 |
fomc | 2,004 | Back to their foreign currencies. | 6 |
fomc | 2,004 | Of course, you don't know what's hedging and what isn't hedging, but at least it gives you a rough idea. The problem is that you need to wait for the earnings data. | 38 |
fomc | 2,004 | And we would have to do it over time in order to track foreign earnings versus the imputed exchange rate effects that we would have injected into that calculation. | 31 |
fomc | 2,004 | Yes, a significant part of that is the oil earnings of U.S. companies. I must tell you, though, that if you try to reconcile company reports with the Commerce numbers you will think you're looking at two separate universes. The bookkeeping that goes on there makes Enron's bookkeeping look like Accounting I. President P... | 67 |
fomc | 2,004 | I have a question about page 10 in Part 1 of the Greenbook, which has to do with the assumptions on labor productivity through 2005. You have productivity growth dropping to only 1.6 percent from 3.0 percent in 2004 and 5.3 percent last year. I asked Bob Rasche to look at the time series properties, and it looks as if ... | 122 |
fomc | 2,004 | It's a deceleration, not actually a decline, in productivity. That deceleration in productivity is a function of the fact that by our reading, even with what we consider to be a fairly optimistic view on the growth of potential output, the level of productivity is above its long-run trend. This pattern looks to us like... | 304 |
fomc | 2,004 | An implication would be a major swing in unit labor costs next year compared with this year, and presumably that might affect the inflation outlook. At any rate, I think this is a fairly important part of the outlook for 2005. Growth in productivity of 1.6 percent, of course, is equivalent to the miserable 1974-95 aver... | 79 |
fomc | 2,004 | That would be an average over a long period of time whereas this would be a relatively brief period of somewhat lower cyclical growth. On the inflation point, I would just note that we don't think there is a big effect on prices from swings in unit labor costs that are associated with cyclical movements in productivity... | 103 |
fomc | 2,004 | But, of course, it also feeds into the employment outlook. | 13 |
fomc | 2,004 | Right, employment and profits both. I think in some sense in the forecast we have a cyclical slowing in profits that also looks to us to be fairly typical. What we typically see is a big increase in profits when productivity is soaring in the early stages of a business cycle and then, as productivity slows down, profit... | 126 |
fomc | 2,004 | Except for the second half of last year, we haven't had the typical recovery surge. So in one sense we may not be very far into the expansion phase of the cycle. | 35 |
fomc | 2,004 | That's a very real possibility. | 6 |
fomc | 2,004 | This is obviously part of the '05 projection, but I was very interested in where that came from. Thank you. | 24 |
fomc | 2,004 | President Parry. | 4 |
fomc | 2,004 | Dave, there is a simulation called "rising inflation expectations" in the Greenbook in which inflation expectations increase gradually by 1 percentage point. I don't know from what level to what level, but I do know that some of the surveys that we see, such as the Blue Chip survey, suggest that inflation expectations ... | 181 |
fomc | 2,004 | Actually, I'd have to go back and ask our model folks because it's in terms of the implicit inflation expectation that is embedded in that model. | 28 |
fomc | 2,004 | I bet it's a lot lower than 21/2. | 12 |
fomc | 2,004 | I'm sure it's lower than 21/2 percent. | 11 |
fomc | 2,004 | You could exogenously make it 21/2 percent. | 13 |
fomc | 2,004 | We highlighted this scenario in part because the model probably incorporates lower inflation expectations than those of some market participants. And in light of the decline in the dollar and the acceleration of commodity prices, there are at least a few straws in the wind that suggest that perhaps inflation will not b... | 298 |
fomc | 2,004 | Okay, thank you. | 5 |
fomc | 2,004 | President Moskow. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I wanted to ask a question about the labor markets. The labor force participation rate has been declining, as has been widely described in the press. Some of us were talking about this earlier, noting that a significant part of the decline is due to a reduction in the teenage labor force partic... | 111 |
fomc | 2,004 | We have interpreted this downturn in labor force participation as principally a cyclical phenomenon. Nevertheless, we have revised down the level that we think the labor force participation will eventually return to; we've revised that down in light of the employment data. But the basic message of our forecast is that ... | 393 |
fomc | 2,004 | So the increase in school enrollment is something that we'll see washing out as the labor market tightens? | 20 |
fomc | 2,004 | Yes. Part of the complication that has arisen in doing this analysis is that the questions in the household survey on labor force participation were changed in the mid-1990s, as you know. Consequently, we have no cyclical experience in terms of how people actually were responding to these questions about being in the l... | 101 |
fomc | 2,004 | Thank you. | 3 |
fomc | 2,004 | Bill Wascher and his group, as you may know, are trying to simulate the old breakdown. If they succeed, we'll probably learn a few things about this issue. | 34 |
fomc | 2,004 | Yes, Bill has been working on the issue. But ultimately, though we may be able to draw some inferences, it's going to be hard to believe--given that the questions were changed--that we're getting something that tracks very closely with past cyclical behavior. But he is attempting to do that decomposition. | 62 |
fomc | 2,004 | Any further questions for our colleagues? If not, who would like to start the Committee discussion? President Moskow. | 23 |
fomc | 2,004 | Thank you, Mr. Chairman. The Seventh District economy continues to improve. In general our contacts are still upbeat, but even as they tell us the good news about current conditions, scattered signs of nervousness about the future are creeping into the conversations, and we're not completely sure why they've become mor... | 913 |
fomc | 2,004 | President McTeer. | 5 |
fomc | 2,004 | Recent data and reports from our board of directors and others confirm that the economy in the Eleventh District is growing but somewhat more slowly than the national economy. Home prices have softened a little in all of our major metropolitan areas. Apartment rents have fallen, and landlords are offering a month or tw... | 804 |
fomc | 2,004 | President Minehan. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. New England mirrors the nation in that it seems to be experiencing both rising growth and a continued soft labor market. Positive reports from businesses large and small, rising sales and profits, gradually improving state budget pictures, and business and consumer optimism all are at odds with... | 1,795 |
fomc | 2,004 | President Broaddus. | 5 |
fomc | 2,004 | Thank you, Mr. Chairman. I think our District's economic picture is not unlike Cathy's. There is certainly some good news in the latest information we have received, both in the data and the anecdotal reports. Activity continues to expand at a fairly good pace as best we can tell, at least for now. Manufacturing, in pa... | 1,026 |
fomc | 2,004 | President Poole. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. My reading is that, in general, demand is coming in on the high side of expectations--not dramatically so but modestly so. My Wal-Mart contact said that he does not recall a time in the last ten years when the situation was more confusing. The internal data that Wal-Mart has from the paycheck c... | 978 |
fomc | 2,004 | President Parry. | 4 |
fomc | 2,004 | Mr. Chairman, economic activity in the Twelfth District is moving ahead solidly, with some areas growing quite rapidly. Many of our retail contacts are upbeat about sales, even as they remain concerned about competitive pressures holding down prices. Housing prices have boomed in many parts of the West recently. Low in... | 971 |
fomc | 2,004 | President Santomero. | 5 |
fomc | 2,004 | Thank you, Mr. Chairman. There has been little change in the economic outlook for the Third District since our last meeting. The Philadelphia staff's leading indexes of economic activity are signaling a pickup in growth in all three of our states over the next three quarters. Current conditions show continued improveme... | 1,270 |
fomc | 2,004 | President Guynn. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Recent economic developments in our Southeast region continue to be positive. Retailers are reporting that sales are still running well above year-ago levels. Our important tourism and hospitality industry has improved further, and reports are now quite positive, especially from South Florida. ... | 1,226 |
fomc | 2,004 | President Hoenig. | 4 |
fomc | 2,004 | Mr. Chairman, the Tenth District has continued to expand since our last meeting, and business contacts remain relatively optimistic about the rest of this year. Consumer spending and tourism have remained solid through the ski season and into this period. Housing activity has eased somewhat, as is true elsewhere, but i... | 675 |
fomc | 2,004 | President Stern. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. The trends that have been evident in the District economy for some time are continuing, so economic activity is expanding further. Let me just start with inflation where, at least in our District, to date there seem to be few signs of any broad-based price pressures and no real concern about in... | 650 |
fomc | 2,004 | President Pianalto. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Economic conditions in the Fourth District have continued to strengthen since our last meeting. My business contacts are telling me that their order books are beginning to fill up, and bankers are saying that their commercial loan portfolio pipelines are also filling up. The business executives... | 757 |
fomc | 2,004 | It's 11:05 a.m. Why don't we recess for a short coffee break. | 18 |
fomc | 2,004 | 2 Mr. Chairman, in front of you is a chart of the forward rate yield curve that you spoke about during Dino's briefing. The red line is the ten-year-ahead one-year-forward rate less the one-year rate, and the black line duplicates the line that Dino showed on his chart. And, yes, it is the case that the spread is quite... | 93 |
fomc | 2,004 | It's interesting that the red line in 2001-04 is rising whereas the other one is flat, which of course reflects our moving the funds rate down. That alters the meaning of the chart. Anyway, Governor Kohn. | 46 |
fomc | 2,004 | Thank you, Mr. Chairman. Recent data have underlined the virtues of patience in our current monetary policy strategy. Demand has been strong-- I'm about to line up against my colleagues to my right, so to speak, [laughter] though not all of my colleagues--but it has been slightly less than expected; and importantly tha... | 1,381 |
fomc | 2,004 | Governor Gramlich. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. First, I'd like to compliment the staff on the new uncertainty calculations. It's very important to have them because without them one tends to measure uncertainty by comparing forecasts. Since forecasters talk to each other and probably talk in terms of means, this what I'll call "conversation... | 1,081 |
fomc | 2,004 | Vice Chair. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. I'll do this briskly. Economic developments in the Second District remain quite favorable. Business and consumer confidence have weakened some, employment has fallen a bit, and in our Empire State survey the forward-looking six-months-ahead expectations show somewhat diminished optimism, but th... | 865 |
fomc | 2,004 | Governor Olson. | 3 |
fomc | 2,004 | In preparation for this meeting, I focused again on business C&I loans, and for the first time in the two-and-a-half years that I have been following that information source, we are starting to see some measurable growth. It would be one thing simply to report that, but it's quite another, at least in my mind, to go ba... | 340 |
fomc | 2,004 | Governor Ferguson. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. In my intervention here, I'll talk about three things: first, what has happened during the intermeeting period and how I interpret it; second, why it has happened or what the hypotheses are; and third, the implications in this room for policy. First, as all of you know, what has happened is tha... | 1,617 |
fomc | 2,004 | Governor Bernanke. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I will align myself with the Kohn axis-- | 17 |
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