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fomc | 2,004 | As long as it's not an axis of evil! | 10 |
fomc | 2,004 | --which proposes that monetary policy patience is appropriate for current macroeconomic conditions. However, the issue has been raised by Vice Chairman Geithner and others that our current policy stance may contribute to potential financial imbalances down the road. The history of using the monetary policy instrument r... | 901 |
fomc | 2,004 | Governor Bies. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I want to start by also acknowledging the range of forecasts the staff has provided. I think it really will help us be more aware of how variable the outlook can be. As someone who spends a lot of time worrying about Basel II and advising bankers that they need to understand the variability of ... | 705 |
fomc | 2,004 | Thank you very much. We'll turn to Vincent Reinhart. | 12 |
fomc | 2,004 | 3 Thank you, Mr. Chairman. I'll be referring to the material that was just handed out. This is another meeting about words, not action. Your discussion about policy would seem likely to center on how to characterize the economic situation and risks to the outlook so as to retain your flexibility going forward. As is ev... | 1,845 |
fomc | 2,004 | Questions for Vincent? I don't have terribly much to say because as others have indicated, most has been said. Just let me point out a few issues. The rate of productivity growth is beginning to slow; and over the last several months, the high-frequency data show a marked deceleration from the elevated pace we saw earl... | 958 |
fomc | 2,004 | Thank you, Mr. Chairman. I support your recommendation for minimal change. I would, however, move to balance on the inflation statement, and I'll tell you why. In my view, that is certainly an accurate reflection of the probability distribution. In fact, while I believe that the risks are close to balanced, my own judg... | 212 |
fomc | 2,004 | Governor Gramlich. | 4 |
fomc | 2,004 | I support your suggestion, Mr. Chairman. I'm actually not altogether averse to going to balance on the inflation assessment. But given that we're coming off a period of downgrading our forecast of economic activity, I think I'd rather leave the statement alone for another month. I'm not entirely averse to that minor ch... | 72 |
fomc | 2,004 | President Minehan. | 4 |
fomc | 2,004 | I just want to clarify that I was not advocating that we move rates at this meeting or even at the next meeting. But I do think there are developments that we ought to keep in the back of our minds as we consider the stance of policy. Clearly, there continues to be an output gap. And clearly, the incoming information s... | 268 |
fomc | 2,004 | President Moskow. | 4 |
fomc | 2,004 | Mr. Chairman, I think it's a close call on whether to balance our inflation concerns. But after hearing your comments, with which I tend to agree completely, I have a slight preference for staying where we are. I think we're in a situation today where the fewer changes in the operative paragraphs, the better. | 62 |
fomc | 2,004 | President Parry. | 4 |
fomc | 2,004 | Mr. Chairman, I certainly support your proposal. I also think that it's a very close call with regard to the balance on inflation. I must admit that recent developments in energy prices and the value of the dollar have led me to conclude that it probably would be better to talk in terms of balanced inflation risks. But... | 98 |
fomc | 2,004 | President Stern. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. I, too, would have at least a mild preference for going to balance on the inflation risks. The reason is that, as I listened to the discussion today, it struck me that we heard more anecdotes that seemed consistent with the possibility of building inflationary pressures. So on that basis, as we... | 88 |
fomc | 2,004 | President Guynn. | 4 |
fomc | 2,004 | Mr. Chairman, I could support your recommendation, but I share the view of President Stern and others in that the discussion around the table today sounded, at least to my ear, as if we do see the inflation risks as balanced. In fact, I think we may have stayed with the phrase "unwelcome decline in inflation" too long.... | 104 |
fomc | 2,004 | Governor Kohn. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. It will come as a surprise to no one that I have at least a mild preference for staying with the inflation risk toward the downside. In my mind, we haven't yet actually seen evidence--we have a lot of anecdotes but no real evidence--that inflation has even stabilized. It is true that core PCE h... | 301 |
fomc | 2,004 | President Santomero. | 5 |
fomc | 2,004 | Thank you, Mr. Chairman. I have just a couple of points. First, I can support your recommendation, although I had a marginal preference for the wording "about equals." I think "about equals" is shaded somewhat to the left of "appears almost equal." That is to say, we have lots of words in the English language, and "abo... | 330 |
fomc | 2,004 | President Pianalto. | 4 |
fomc | 2,004 | Mr. Chairman, I also can support your recommendation on the language, given your comment that, if we make a change, the markets are going to view that as the first step in a sequence and will expect changes at our subsequent meetings. But I do have to admit that I also have a mild preference for going to a balance of r... | 84 |
fomc | 2,004 | President Hoenig. | 4 |
fomc | 2,004 | Mr. Chairman, I'd prefer that we move to a balanced statement on the inflation risks because I think the risks in fact are relatively balanced now. But I would not choose to disagree with the stronger preferences that might be held by others around this table who believe that we really should not be making a change at ... | 76 |
fomc | 2,004 | Governor Ferguson. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. While I am sympathetic to the concerns that others have expressed, my view is that we shouldn't make any changes, and I'd keep this slight shading in the balance of risks language as it is. I have that view for a couple of reasons. One is that the market seems to be expecting very little change... | 389 |
fomc | 2,004 | President Broaddus. | 5 |
fomc | 2,004 | First, Mr. Chairman, let me associate myself with Tony's comments about the Bluebook. I also felt that it was very well thought out this time, but I would be comforted, Vincent, by your putting in all three options, which would indicate that we're expected to have action alternatives most of the time going forward. On ... | 573 |
fomc | 2,004 | Thereby making the Chairman's recommendation seem terribly moderate! [Laughter] | 15 |
fomc | 2,004 | Governor Bernanke. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I appreciate the anecdotes regarding price pressures, but I'm somewhat wary of them. I think many of them reflect the salience of the commodity and energy price changes we've seen. But first, we know that those are a small part of total costs. Second, there may be some confusion between high co... | 187 |
fomc | 2,004 | President McTeer. | 5 |
fomc | 2,004 | I agree with your recommendation for no change in policy. I would prefer balanced risks on inflation. I think most of the weakness we've seen recently has been on the real side rather than the inflation side. It's just too much of a Phillips curve type of analysis for me to view the two as a tradeoff in that way. I wou... | 217 |
fomc | 2,004 | Vice Chair. | 3 |
fomc | 2,004 | Mr. Chairman, I'm comfortable with your recommendation both on policy and on the statement. I think it's true that the anecdotal information on prices is worse since our last meeting. But the numbers haven't moved. And our statement already reads that the risks on inflation are quite close to balance. "Almost equal" is... | 81 |
fomc | 2,004 | Governor Bies. | 4 |
fomc | 2,004 | Mr. Chairman, I support your recommendation, and I would prefer to keep the slight bias emphasizing that there is a possibility of disinflation. One of the things that makes me uncomfortable about making a change--going back to my comment that I like the fan charts--is that inflation is "fanning" around 1 percent, and ... | 144 |
fomc | 2,004 | Governor Olson. | 3 |
fomc | 2,004 | Mr. Chairman, if it is a close call as to whether or not we would bring the inflation risks into balance--and I think it is a close call--then I have a strong preference for changing the statement as little as possible. It seems to me that, in the past when we have made significant changes in the statement, the market ... | 144 |
fomc | 2,004 | This is a very close decision actually--not so much in the numbers but in the fact that all of us, as best I can judge, could go either way if we had to. It's just too close to call. I think Governor Olson probably correctly summarized where we stand. And there's a lot to be said for President Poole's argument that it'... | 130 |
fomc | 2,004 | I'll begin with the directive wording, which is at the bottom of page 11 in 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 ... | 183 |
fomc | 2,004 | Since we will be approving the statement as well, could you distribute the draft statement, please, just to be sure? It's in effect what Vincent had indicated, so I trust there are no surprises. [Pause] If there are no comments, please call the roll. | 54 |
fomc | 2,004 | Chairman Greenspan Yes Vice Chairman Geithner Yes Governor Bernanke Yes 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 | 49 |
fomc | 2,004 | We now have to go back to the agenda item we deferred at the beginning, which was a discussion of the minutes of the previous meeting. There were important issues raised. Vincent, do you want to comment? | 42 |
fomc | 2,004 | In retaliation for the hard questions President Parry has asked the staff over the years, I will be delaying the start of his lunch! [Laughter] In doing so, I'll be referring to the memo I circulated last night. Commenting on the January draft minutes, one policymaker suggested trimming the first four paragraphs coveri... | 646 |
fomc | 2,004 | Let me first follow up on your transparency assessment. I think Cathy Minehan has raised an interesting point. I would say this: We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that onl... | 265 |
fomc | 2,004 | Five. | 2 |
fomc | 2,004 | I was not one of them, so I would make the count six. It would be useful to discuss this even at the expense of delaying our tribute to our guest of honor--is that what we're calling you today? | 44 |
fomc | 2,004 | The old guy! | 4 |
fomc | 2,004 | Does anybody have any thoughts on this? I must admit that I didn't think about some of these issues until I saw the comments others made, but I'm a little concerned about other people getting into the debate when they know far less than we do. I don't know what Michelle has to say on this but my impression is that, if ... | 95 |
fomc | 2,004 | Mr. Chairman? | 4 |
fomc | 2,004 | Yes. | 2 |
fomc | 2,004 | I do have a concern about paragraph 3. It's not just a question of hiding or reducing the information available; I think that paragraph actually misrepresents the substance of the conversation in that it seems to suggest that the reason for not releasing the minutes earlier is purely logistical, which is certainly not ... | 97 |
fomc | 2,004 | May I make a suggestion? This could get to be a very long discussion, and we don't need that. Do you have time to make changes? | 30 |
fomc | 2,004 | I have all the time you want. The Committee, however, will have to vote on the minutes. | 21 |
fomc | 2,004 | Oh, I understand that. Let me make the following suggestion: Those who haven't commented should provide comments to Vincent. The reason I say that is that we may very well find that those who didn't comment actually strongly support the minutes as written, and it's important to know that. We could then do--we've done t... | 137 |
fomc | 2,004 | For the Reserve Bank members, this will be the first experiment with notation voting electronically. You'll have to do that kind of vote in two weeks anyway for the minutes of this meeting, which we will be circulating at that time. | 45 |
fomc | 2,004 | Okay. Any comments relevant to this? | 8 |
fomc | 2,004 | I have a question. We log in our preferences to Vincent. Then what does he write down as the final word, the majority vote? | 28 |
fomc | 2,004 | He will try to infer from your comments, and I think we all trust him in this respect, a way to rewrite the minutes that he thinks will gain a majority vote. Then we will find out whether he is accurate. [Laughter] | 49 |
fomc | 2,004 | A quick question prompted by Vincent's last comment that we won't have the luxury to have this type of discussion in the future. A couple of meetings back, when we were talking about expediting the minutes, you suggested that one way to deal with resolving comments to the Secretary was to have a subset of the Committee... | 107 |
fomc | 2,004 | No, at this time the only thing Vincent will be involved with is finalizing the minutes for the previous meeting. That has nothing to do with how we proceed going forward on this. | 37 |
fomc | 2,004 | President Guynn, in the experiment with expediting the minutes, we're going to post drafts of the minutes every evening so you'll be able to see how the comments evolve. Then we'll deal bilaterally with Committee members if people have specific comments. When we talked about the possibility of forming a subgroup of the... | 96 |
fomc | 2,004 | Will we see each other's comments? This is the first time I think we've ever had the luxury of seeing who made what kinds of comments. Will we see each other's comments, and by attribution, in the future? | 43 |
fomc | 2,004 | Now, wait a second. May I ask a question? If we have a subcommittee that is putting out a draft of the minutes to be voted on, none of us is in any way forgoing our legal commitments. It's the delegation of the vote that's the legal issue. A subcommittee to facilitate that process is, in my judgment--I don't know what ... | 82 |
fomc | 2,004 | I thought that's what you suggested in earlier conversations. The idea was to have some group look at the comments on the staff's draft and make some shared judgment about whether the suggested changes should be made. | 40 |
fomc | 2,004 | It doesn't matter how it's done because the ultimate decision is made finally by a notation vote. On this one, I think it's probably not necessary to appoint such a group, but that doesn't change the previous discussion. | 42 |
fomc | 2,004 | Thank you. | 3 |
fomc | 2,004 | Any further comments? If not, the next meeting is May 4. | 15 |
fomc | 2,004 | Good morning, everybody. This is the last FOMC meeting that Al Broaddus will be attending. I believe he attended his first meeting in 1973. | 34 |
fomc | 2,004 | In July 1973, I'm told, Mr. Chairman. But I don't remember. [Laughter] | 22 |
fomc | 2,004 | You don't remember? Well, I guess the FOMC didn't make a big impression on you at that time! | 23 |
fomc | 2,004 | It made a big impression; I was just too nervous to remember. | 14 |
fomc | 2,004 | We will miss you, but of course we will have a luncheon for you after our next meeting. Your official date of retirement is August 1? | 30 |
fomc | 2,004 | Right, August 1. | 6 |
fomc | 2,004 | Well, whatever you have to say for the future to the FOMC, we will give you another 32.4 seconds to say it at this meeting. | 33 |
fomc | 2,004 | I've got more time for a last shot then! [Laughter] | 14 |
fomc | 2,004 | Would somebody like to move to approve the minutes of March 16? | 14 |
fomc | 2,004 | So moved. | 3 |
fomc | 2,004 | Without objection, they are approved. Mr. Reinhart, do you want to make some comments relevant to this set of minutes? | 26 |
fomc | 2,004 | I'd just like to report on the first dry run of our experiment in expediting the production of the FOMC minutes. We were able to produce a proposed final version of the minutes and get all twelve voting members of the Committee to indicate by our deadline that they were inclined to vote to adopt the minutes at the next... | 480 |
fomc | 2,004 | Any questions for Vincent? | 5 |
fomc | 2,004 | Mr. Chairman, may I ask a question? It seems to me that we ought to consult with counsel as to whether the so-called inclination to vote could be regarded as being the equivalent of a vote and could create a problem in the future. I think that's something on which we should get some expert legal advice. | 63 |
fomc | 2,004 | We did. | 3 |
fomc | 2,004 | Okay. So it's perfectly okay to put it that way? | 12 |
fomc | 2,004 | Virgil thought that the wording of the request we sent around was perfectly appropriate. | 16 |
fomc | 2,004 | President Geithner is proposing the election of Joseph Tracy as an associate economist of the FOMC. If there are no objections, I will assume that his request is approved. | 36 |
fomc | 2,004 | Thank you. | 3 |
fomc | 2,004 | Dino Kos, would you start us off? | 10 |
fomc | 2,004 | 1 Yes. Thank you, Mr. Chairman. I'll be referring to the charts that Carol Low just circulated. In the intermeeting period, stronger economic data and rapidly shifting expectations brought forward the timing of the anticipated tightening cycle and affected a range of asset prices. The top panel of page 1 graphs the thr... | 1,820 |
fomc | 2,004 | The volume of financing in the mortgage markets has come down very sharply and has stayed down for quite a long period now. I would assume, and indeed you implied it, that hedges have already been taken on a goodly part of the positions held. So the impact of a change in yields clearly has been far less than it was las... | 131 |
fomc | 2,004 | Well, I think it's hard to identify what the vulnerabilities are. On the downside, it's the refinancing risk that is being hedged; on the upside, it's the extension risk. As the duration is extending because higher interest rates are pushing off the day of possible refinancing, there's a certain amount of selling that ... | 66 |
fomc | 2,004 | But that doesn't move as rapidly as when we get a big interest rate move and there's a huge option takedown of mortgage positions. | 27 |
fomc | 2,004 | Exactly. We had a flavor of that in '94 when an unexpected change in interest rates caused a huge amount of extension hedging. So, that's always the risk. Now, what will trigger it is difficult to pinpoint ex ante. But certainly there would be some amount that would need to be hedged as rates increase. | 65 |
fomc | 2,004 | Presumably there will be a lot of delta hedges moving in with that type of operation. | 19 |
fomc | 2,004 | Yes. I'm looking at Governor Bies, who may have some direct experience in this area. But again, my guess is that there would be a certain amount of hedging that would still need to be done. | 43 |
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