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fomc | 2,004 | Mr. Chairman, you can see in Dino's chart on page 2 that, when rates are unchanged and are expected to be unchanged, the duration of a thirty-year conventional mortgage levels out at around four and one-half years. So we have at most about another half year to go if rates were to rise. | 63 |
fomc | 2,004 | Well, that's what history tells us--that at the lowest levels of refinancing, duration has been about four and one-half years. But can that change in any way? There's nothing mathematically necessary about it, is there? | 45 |
fomc | 2,004 | No, that's more a reflection of the mobility of our population. When rates are unchanged for long enough, the economic incentive to refinance goes away, but people still do prepay their mortgages because they move or they trade up. So, I think the four and one-half years is not immutable, but it's a reflection of deepe... | 67 |
fomc | 2,004 | A reflection of the house turnover rate? | 8 |
fomc | 2,004 | Yes. | 2 |
fomc | 2,004 | I'm a little surprised that in your charts New Zealand has all of a sudden become a major international power. Considering the fact that the yield spreads between New Zealand and Australia are locked, you must be trying to convey some subtle message here. | 47 |
fomc | 2,004 | Well, the only message is that, with the euro having brought together a lot of currencies into one, the number of currencies out there with floating rates has been reduced. We basically have the euro and a number of fixed-rate currencies, which are not worth showing, so the number of alternatives in the population is s... | 64 |
fomc | 2,004 | You ought to try the zloty or something. | 11 |
fomc | 2,004 | It may be too calm. | 6 |
fomc | 2,004 | There are indications that inventories are building up on the docks in China and that warehouses are beginning to fill, which I presume is related to the recent weakness in commodity prices, especially for steel. Prices for cold rolled sheet, which is the premier steel--especially in China--for car making, have come do... | 110 |
fomc | 2,004 | We tend to talk to traders rather than to shippers and factory managers, so I would not hold myself out as the expert in this area. Certainly among trading and investment types, I would say that there's a lot of confusion. The sentiment about China has been pretty volatile in terms of whether the economy is overheating... | 123 |
fomc | 2,004 | We don't have any actual real-time data on inventories at that level. | 14 |
fomc | 2,004 | There is an old classic adage that suggests that, when everybody says "nobody has any inventories," it is telling you that the rate of accumulation is horrendous and that the level is already very high by historical standards but you haven't sated the demand for the still higher level that occurs just before it turns a... | 93 |
fomc | 2,004 | Copper prices are down. | 5 |
fomc | 2,004 | They're down a bit. | 5 |
fomc | 2,004 | In the last three or four days? | 8 |
fomc | 2,004 | Well, they're off their peak. When we put the Greenbook to bed, they had come down from their peak level, and they have come down another 10 cents, I would say, since then. That was largely on news of the macro monetary policy coming out of China rather than on news about real economic activity or inventories or anythi... | 306 |
fomc | 2,004 | Industrial activity or more broadly a goodly part of the GDP is better measured by metals prices than by lumber, whose demand is fairly concentrated, or certainly by agricultural products. | 34 |
fomc | 2,004 | Right. And for metals, I think the story isn't necessarily the same for all of them. But copper in particular was thought to be driven by developments in China. | 33 |
fomc | 2,004 | Aluminum is peaking, as is zinc and I think tin. Somebody still buys tin, but that's down, too, I believe. | 28 |
fomc | 2,004 | I have a less detailed picture in front of me regarding aluminum. It appears to have stopped rising as opposed to falling. | 24 |
fomc | 2,004 | It has flattened out. | 5 |
fomc | 2,004 | Yes, but copper has already started moving down. | 10 |
fomc | 2,004 | Okay. Any other questions for Dino? If not, would someone like to move the ratification of the domestic market transactions? | 25 |
fomc | 2,004 | So moved. | 3 |
fomc | 2,004 | Without objection they are approved. Dino, would you like to talk about the swap lines? | 18 |
fomc | 2,004 | It's May, which means it is time to consider the renewal of the swap lines. I did send a brief memo around which covered the renewal of the swaps, and I'm recommending that the Committee renew them. There were also a couple of other items that I mentioned briefly regarding some things that we're doing with the euro res... | 74 |
fomc | 2,004 | If there are no objections, I will assume that your request is granted. We now move on to the staff report, and I call on Dave Stockton and Karen Johnson. | 34 |
fomc | 2,004 | Thank you, Mr. Chairman. After countless meetings and much effort to assemble the Greenbook over the past few weeks, I must admit that it was disappointing to come to work last Thursday to find that our forecast had a half-life shorter than a jar of mayonnaise in the Mojave Desert. [Laughter] As you know, the BEA repor... | 2,597 |
fomc | 2,004 | One element of the external forecast that may be of greater interest than usual is the recent and prospective behavior of import prices, and I thought that I would begin by looking at some of the factors driving changes in those prices. The advance release last week reported that the deflator for total imports of goods... | 1,309 |
fomc | 2,004 | Incidentally, has General Motors reported yet? | 9 |
fomc | 2,004 | No, we don't have the report on General Motors yet. | 12 |
fomc | 2,004 | Questions for our colleagues? President Moskow. | 9 |
fomc | 2,004 | Thank you, Mr. Chairman. I just wanted to ask Karen a question about China. You mentioned that China's growth had been 15 percent and you expected it to slow to 71/2 percent but not collapse, as you put it. There has been a lot of speculation about the risks and potential difficulties associated with a slowing Chinese ... | 141 |
fomc | 2,004 | Well, if China's growth fell below, say, 5 percent, I think we'd see fairly significant spillover effects. Seven percent used to be a sort of "target" rate of growth; then it became 8 percent and then it was around 10 percent. But China growing at 7 percent would be a return to what we had seen for quite a few years in... | 476 |
fomc | 2,004 | May I just add a comment? One difference to note between Asia '98 and China now is that a major issue in the earlier situation was an outflow of capital, but China has a closed capital account. So a capital outflow is something that we're just not going to see to the same degree in the current case. That's one differen... | 91 |
fomc | 2,004 | And in places such as Korea and a few other countries, we're not seeing the current account deficits and the need to attract capital; so if the capital were to stop flowing, it wouldn't have exactly the same consequences. On the other hand, outside of China, domestic demand is not really the driving force in Asia; it i... | 90 |
fomc | 2,004 | Thank you. | 3 |
fomc | 2,004 | Further questions for David or Karen? If not, who would like to start our Committee discussion? President Moskow? | 23 |
fomc | 2,004 | Thank you, Mr. Chairman. The pickup in the Seventh District economy has become more broad-based. Moreover, our contacts seem much less nervous than they were in March. Many report increased bookings, growing backlogs, and low inventories, suggesting that momentum will continue. Household spending has been robust for so... | 811 |
fomc | 2,004 | President Broaddus. | 5 |
fomc | 2,004 | Thank you, Mr. Chairman. I want to depart a little from my usual practice here and go directly to the national economy and the overall forecast. Frankly, recent developments in our District don't deviate much from what appears to be happening at the national level, so I don't think I would add a whole lot of value this... | 1,193 |
fomc | 2,004 | Thank you. President Poole. | 7 |
fomc | 2,004 | Thank you, Mr. Chairman. The contacts that I usually call have a generally upbeat view on the state of the economy. My FedEx contact emphasized particularly that his company is reviewing its capital expenditure plans. The fiscal year for FedEx begins on June 1, and they are expecting capital expenditures in fiscal '05 ... | 1,056 |
fomc | 2,004 | President McTeer. | 5 |
fomc | 2,004 | Mr. Chairman, at breakfast this morning, I was challenged to try to describe the current economy in a haiku. By coincidence, that's the way the briefing for this meeting started out in Dallas a few days ago. And the haiku is, "The story today is about returning growth and rising prices." And I do think that fits pretty... | 870 |
fomc | 2,004 | Thank you. President Minehan. | 7 |
fomc | 2,004 | Thank you, Mr. Chairman. Things continue to improve in New England. In particular, comments from manufacturers were more upbeat than we've seen in a long time. Though business confidence in Massachusetts is slightly off previous highs, recent surveys indicate particularly positive assessments of national business condi... | 1,175 |
fomc | 2,004 | President Guynn. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Continuing a pattern that was already evident at the time of our last meeting, economic developments in our Southeast region are upbeat. There's evidence from several fronts that I would point to that demonstrates the growing breadth of our regional expansion. Florida is the strongest state in ... | 1,185 |
fomc | 2,004 | President Santomero. | 5 |
fomc | 2,004 | Thank you, Mr. Chairman. Economic activity in the Third District continues to increase, although there's still little evidence of job growth. In addition, the Philadelphia staff's leading indexes of economic activity continue to signal a pickup in growth in all three of our states over the next three quarters. Retail s... | 1,768 |
fomc | 2,004 | President Hoenig. | 4 |
fomc | 2,004 | Mr. Chairman, the Tenth District economy has continued to improve significantly since our last meeting, with most sectors showing considerably greater strength. Manufacturing activity accelerated in March and April. Production and new orders increased sharply, causing backlogs at a substantial number of the firms we su... | 1,033 |
fomc | 2,004 | Governor Kohn. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I'm pleased to note that I can summarize my comments by saying that I agree with Al Broaddus. And I'm sorry that I won't have the opportunity to say that again at these meetings, Al. I agree with him with regard to both the national economy and the brittleness of the China situation. I think th... | 1,602 |
fomc | 2,004 | Thank you. President Stern. | 6 |
fomc | 2,004 | Thank you, Mr. Chairman. Much of what I plan to say is going to sound familiar by now. I will start by observing that the trends that have been apparent in the Ninth District for some time have accelerated and we have a rapid expansion ongoing. Recently we've had meetings with our Advisory Council on Small Business and... | 548 |
fomc | 2,004 | First Vice President Moore. | 5 |
fomc | 2,004 | Thank you, Mr. Chairman. At a recent large family dinner, my daughter made the remark that it was a pleasure to get to sit at the adult table even if it was only one time. Sitting here today, I can relate to her comment! [Laughter] The Twelfth District's already solid expansion has gained additional momentum recently. ... | 869 |
fomc | 2,004 | Vice Chairman. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. The balance of risks has changed since our last meeting, and the changes seem largely favorable. The outlook for growth seems stronger, with less downside risk. Inflation risks appear more balanced around a higher but still quite moderate path. The economy of the Second District has continued t... | 869 |
fomc | 2,004 | Let's break for coffee and be back in ten to fifteen minutes. | 13 |
fomc | 2,004 | President Pianalto. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Business conditions continued to improve in the Fourth District. The pace of improvement appears to have accelerated in recent weeks, and the improvement is rather broad-based across industrial sectors. I'd like to make four general observations about business conditions in the Fourth District.... | 743 |
fomc | 2,004 | Governor Bernanke. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. At our last meeting, I expressed some wariness about relying too much on anecdotes for assessing the economic situation, particularly the inflation situation. Well, as somebody once said, the plural of anecdotes is data. The data since the last meeting do suggest that inflation has stabilized a... | 1,075 |
fomc | 2,004 | Governor Gramlich. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Just after our last meeting, Greg Ip wrote a column describing three alternative strategies for the Fed to follow in getting rates back to normal. We could be early and gradualist, wait and make sure, or follow what he called the late and leisurely strategy in which we would actually aim for a ... | 1,286 |
fomc | 2,004 | You get the academy "reward." Governor Olson. | 10 |
fomc | 2,004 | Thank you, Mr. Chairman. I'd like to discuss two data points: one a survey of bankers and the other an update on fiscal policy. I surveyed a large money center bank, a large regional bank, and a smaller Midwestern regional bank. I was surprised to find that they all were less optimistic than both of our lender surveys ... | 845 |
fomc | 2,004 | Governor Ferguson. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. Obviously, as has already been talked about, several pieces of incoming data put the question of rising inflationary pressure squarely on the table before us at this meeting. We've heard anecdotal information from almost everyone who has spoken. The March CPI number obviously has been on the ta... | 1,429 |
fomc | 2,004 | Governor Bies. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I will take the opportunity for the last time, I guess, to say that I agree with President Broaddus. As I prepared for this meeting, I too found that the changes since our last FOMC meeting were significant. As I looked at the different indicators I track, I saw more change than I had for quite... | 968 |
fomc | 2,004 | Thank you. I think we have covered everybody. Mr. Reinhart. | 15 |
fomc | 2,004 | 2 Thank you, Mr. Chairman. I will be referring to the material that Carol Low distributed to you during the coffee break. Market interest rates staged a remarkable runup over the intermeeting period, spurred on by data releases that surprised investors by their strength and by comments of the Chairman during congressio... | 2,266 |
fomc | 2,004 | Questions for Vincent? President Moskow. | 8 |
fomc | 2,004 | Thank you, Mr. Chairman. Vincent, I just had a question about the word "measured." I guess there are three options here. We have been using the word "patient," and that gives a certain message to the financial markets. So as you've outlined in the Bluebook, we could retain the word "patient," substitute the word "measu... | 155 |
fomc | 2,004 | To what significant digit? | 5 |
fomc | 2,004 | Whatever you decide! | 4 |
fomc | 2,004 | I think we can agree on the sign. The experience of taking out the promise of remaining accommodative for a "considerable period" and substituting what seemed to be a similar concept of "patience" was that it prompted a good-sized market reaction. Similarly, "patience" has now become a loaded word, and the first thing ... | 204 |
fomc | 2,004 | My dictionary aligns perfectly with Vincent's. | 8 |
fomc | 2,004 | But does your market sense align with his? | 9 |
fomc | 2,004 | Vincent makes a very good point about the initial reaction in January, when "patience" replaced "considerable period." And I think he's right that market participants will look to see if "patience" is in today's statement. If it is not, there will be a knee-jerk reaction pushing yields higher. | 65 |
fomc | 2,004 | Thank you. | 3 |
fomc | 2,004 | The other point I'd like to make, President Moskow, is that in the total scheme of things, any reaction to the wording today is going to be dwarfed in significance relative to what happens at 8:32 Friday morning after the employment report comes out. | 53 |
fomc | 2,004 | Right. But basically you're talking about a small number of basis points from the difference in the wording? | 20 |
fomc | 2,004 | Yes, but it will also influence how market participants subsequently react to the data. That is, their view of the employment report or the CPI is going to be filtered through the lens of what they think the Committee is going to be doing. In that sense "measured" is a speed bump to them as well, in terms of overreacti... | 97 |
fomc | 2,004 | President Poole. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I was going to raise a question that goes right to the point that Vincent was just making. The critical issue is not how the market will respond this afternoon but how best we can create language that will align our reaction to the data and the market's reaction to the data. As Roger Ferguson m... | 88 |
fomc | 2,004 | But I had to say it nevertheless! [Laughter] | 12 |
fomc | 2,004 | So I think it might help to give some sense of that--to modify this language and say something like "with inflation low and resource slack and given the economic outlook"--to emphasize the point that, if the economic outlook changes as a consequence of the incoming data, then of course it makes sense for us to reconsid... | 211 |
fomc | 2,004 | President Santomero. | 5 |
fomc | 2,004 | I'd like to go to this point of what the market's reaction will be. Obviously the market reaction is going to be dependent upon what we do relative to what market participants expect us to do. Their expectations are the relevant issue here. But I don't know how we measure market reaction when we don't have a way of goi... | 378 |
fomc | 2,004 | Haven't you done surveys on the market's expectations regarding the language? I think you have. | 20 |
fomc | 2,004 | In the survey by the Desk, the question we asked market participants was whether they expected us to drop or modify the word "patience." | 28 |
fomc | 2,004 | If they expect us to drop it or modify it, I read that as an opportunity to drop it. If we really wanted to know more, I guess we should have asked, but I'm not sure how to do that. There are lots of words in the English language. | 55 |
fomc | 2,004 | It's hard to know how to interact with market participants about potential wording. Obviously I am making a guess here, but it does seem, on the basis of reading various newsletters, that the preponderance of economists who write about the issue expect the Committee to modify rather than to drop the word "patience." Bu... | 147 |
fomc | 2,004 | Traders react to what they think other traders are going to do who react to the way they think still other traders are going to react. To try to anticipate how they will react is a futile activity in my experience. President Hoenig. | 48 |
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