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fomc | 2,004 | President Hoenig. | 4 |
fomc | 2,004 | Mr. Chairman, the Tenth District economy has continued to expand at a very solid pace since the last meeting. The labor market shows substantial signs of improvement. The District's employment rose in May, and I think the numbers in June are also very strong, and jobs are above year-ago levels in all seven of our state... | 679 |
fomc | 2,004 | Shall we break for coffee? See you all shortly. | 12 |
fomc | 2,004 | President Yellen. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. | 7 |
fomc | 2,004 | It took me a while to figure out how to address you! [Laughter] | 17 |
fomc | 2,004 | The Twelfth District economy gained momentum in recent months and is expanding in line with the nation. Consumer spending rose smartly, and our contacts report that price discounting for a variety of small retail items has declined as demand has grown. District housing markets saw strong price appreciation and strong s... | 904 |
fomc | 2,004 | President McTeer. | 5 |
fomc | 2,004 | The economic expansion in the Eleventh District started later and has been somewhat slower than the U.S. expansion, but remarks from our directors, Beige Book contacts, and others suggest that the gap is closing fast. The director reports from our various board meetings in the past few months have been considerably mor... | 930 |
fomc | 2,004 | President Stern. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. The expansion in the Ninth District is broadly based. It has accelerated recently, and we're hearing scattered reports of labor availability issues in select locations. With the improvement in employment, conversations and concerns about offshore outsourcing have diminished, as one would expect... | 381 |
fomc | 2,004 | President Poole. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I'm going to talk primarily about conversations I've had with those on my standard list of contacts. My Wal-Mart contact said that June sales had come in a bit weaker than anticipated, which I think was widely reported in the press. His estimate for sales growth in June is now in the 2 to 4 per... | 1,497 |
fomc | 2,004 | President Guynn. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. The economic expansion in our Southeast region remains solid. Recent developments in retail sales, autos, housing, tourism, travel, banking, and manufacturing have all been positive, and I will not go through a discussion of each individual sector. The main weaknesses remain in nonresidential c... | 1,736 |
fomc | 2,004 | President Lacker. | 4 |
fomc | 2,004 | In the Fifth District, the economic recovery appears to have strengthened in May and early June. Manufacturing activity continued to expand, although the pace has lessened in recent weeks. Shipments and new orders are up, and there are spot reports of increased export demands in Europe and China, particularly for some ... | 758 |
fomc | 2,004 | Vice Chair. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. Developments since our last meeting support a reasonable degree of confidence in the strength of the expansion and somewhat more concern about the outlook for inflation. The economy of the Second District seems to have strengthened further. Employment is growing very rapidly, and retail sales h... | 1,063 |
fomc | 2,004 | Governor Kohn. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. My forecast, like most of yours, represents quite a nice outcome for the economy. I have growth somewhat above the growth of potential, so the output gap closes fairly gradually, with the economy reaching full utilization in the latter part of 2005 and core PCE inflation remaining below 2 perce... | 1,501 |
fomc | 2,004 | Governor Gramlich. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I read from the polls and the market surveys that it is a "slam dunk" or, to use another analogy that has been in the news lately, a "gimme putt" that the Fed will start raising rates at this meeting. That issue seems hardly worth discussing. What is on everybody's mind is how fast and how far ... | 1,041 |
fomc | 2,004 | Governor Ferguson. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. During the intermeeting period I have been struck mainly by the surprises that have come in. Unfortunately, this time around the surprises have been somewhat contradictory. We have already had some discussion of what the downside surprises have been, so let me try to be fairly brief. The first,... | 1,018 |
fomc | 2,004 | Did he say that? [Laughter] | 9 |
fomc | 2,004 | Forty years ago, I was thirteen! [Laughter] | 13 |
fomc | 2,004 | Governor Bies. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Economic growth is increasingly becoming broad-based and, I believe, sustainable. Capital expenditures, whose curtailment was the cause of the last recession, are strong. Employment growth in the last several months has really come back to life. And manufacturing is showing real strength for th... | 648 |
fomc | 2,004 | President Bernanke. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I'd like to share with you Meyer's Rules of Forecasting, as propounded by former FOMC member and current sensationalist author, Larry Meyer. [Laughter] Rule 1, stick with your forecast as long as possible. Rule 2, when your forecast becomes untenable, make a new forecast. Rule 3, know when to s... | 1,182 |
fomc | 2,004 | Governor Olson. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. In preparation for today, I surveyed three banks--a New York money center bank, a Southeastern regional bank, and a national bank with a Midwest base and a twenty-four-state footprint. I came away with two strong reactions from those interviews. The first had to do with asset quality. Two of my... | 620 |
fomc | 2,004 | Mr. Reinhart. | 5 |
fomc | 2,004 | 5 Thank you, Mr. Chairman. I'll be referring to the material that Carol Low is in the process of handing out. The staircase plotted in the top left panel of your first exhibit shows the path of the federal funds rate consistent with money market futures through year-end assuming that you will act only at regularly sche... | 2,443 |
fomc | 2,004 | Questions for Vincent? If not, let me start off by noting that recent commentary--not only the anecdotal discussions around this table but also the reports from our various Beige Book contacts, directors, and the like--have all pointed to an extraordinarily expansive economy and to the emergence of underlying inflation... | 2,731 |
fomc | 2,004 | Do you want to start a go-around on this issue? | 12 |
fomc | 2,004 | No, we don't need a go-around on this. If you have an objection to the statement, please indicate it. | 24 |
fomc | 2,004 | I guess I can accept this statement. I must say that I've been sitting on a very pointed fence for a long time on this issue about language. Would it be reasonable to ask Vincent to circulate in advance suggested language for our August meeting--to give us some idea about what we are going to do about this so that we c... | 113 |
fomc | 2,004 | I think that's an excellent suggestion, and there's no reason that it can't be done. Vincent could give alternate suggestions. Even though we have six weeks to do that, there's no reason that we can't send out early versions of different possibilities if we decide to drop the last two sentences. | 56 |
fomc | 2,004 | I would be tilling some of the ground of the two prior Ferguson working groups, but I can give you alternative wording on different rationales that the Committee considered in its previous discussions of communication policy. | 40 |
fomc | 2,004 | If we adopt the proposed statement, I think it would also be appropriate--perhaps in the monetary policy hearing, Mr. Chairman--for you to in some way emphasize this last sentence that has been added to the statement. I don't know how to do that exactly. But I just worry that an implied commitment to the market of movi... | 85 |
fomc | 2,004 | This does not say that; it doesn't make a commitment. If you read it very closely, it says that we are forecasting that our moves are likely to be measured but that we will act on the basis of the evidence. | 45 |
fomc | 2,004 | All I'm saying is that I think the way this plays out is going to be influenced by the degree of emphasis placed on the one sentence rather than the other sentence. | 33 |
fomc | 2,004 | I agree with that. | 5 |
fomc | 2,004 | I hope that we can put a lot of emphasis on the importance of the data in driving what we do and try to back off from that implied commitment. | 31 |
fomc | 2,004 | That is clearly my inclination. Remember, we started with "considerable period," then we went to "patience," and now we're coming to various forms of unwinding the whole process. | 38 |
fomc | 2,004 | This is sort of the great-grandchild of "considerable period!" [Laughter] | 18 |
fomc | 2,004 | It has turned out better than we had any reason to anticipate. And I think we need one more turn of the screw to go back to our old-fashioned balance of risk statement. But I don't think it has to be done today. We don't need it. Are there any further comments? Yes. | 60 |
fomc | 2,004 | I have a question about one particular phrase. We have in this statement "hiring has picked up." On consideration, I'm worried about how that will be interpreted in the event that we get something like a month with 200,000 in job gains. | 51 |
fomc | 2,004 | But hiring has picked up. | 6 |
fomc | 2,004 | But if we see a month with 200,000 of job creation people may say, well, hiring is not picking up. So I was thinking about something more generic like "labor market conditions have improved." That would be more expansive and therefore less susceptible to second-guessing. It's just a question. I think both characterizat... | 80 |
fomc | 2,004 | I have no objection to that language if people would prefer that. Is that satisfactory to everybody? Let's make that change. | 24 |
fomc | 2,004 | What were the words--"labor market conditions have improved"? | 12 |
fomc | 2,004 | "Labor market conditions have improved." It's a bit more ambiguous, so we don't have people overreacting to an individual labor number. | 27 |
fomc | 2,004 | I think that's a useful addition. Yes? | 9 |
fomc | 2,004 | I feel very much the same as President Poole does about this. I thought we should take the opportunity now that we're increasing rates to go back to the old formulation. I probably should have responded to the Bluebook sooner with some alternative language, which I worked on a little. I can go along with what you are s... | 112 |
fomc | 2,004 | Actually, I started that process. | 7 |
fomc | 2,004 | I know you did. | 5 |
fomc | 2,004 | I don't think we got a negative reaction to that. | 11 |
fomc | 2,004 | Maybe, maybe not. I'm not sure I agree with that. But that's your interpretation, and I'm willing to go with it. Nevertheless, I do think it would be good for Vincent to figure out some ways in which we might say what we did and why we did it and then characterize the risks in a simple fashion the way we used to. I hop... | 94 |
fomc | 2,004 | That's where we're headed. Any further comments? Yes. | 11 |
fomc | 2,004 | We may be headed there, but remember this: When we had all of these working groups that Roger chaired regarding language to describe the balance of risks, we had very difficult problems shaping that into clear communication. First, we have an issue that we'll never resolve on exactly what we mean by the output gap. And... | 129 |
fomc | 2,004 | Well, let's put it this way. We can drop those two sentences and put in additional sentences. I think there's general agreement within the Committee as to where we want to go and it's merely a question of finding the appropriate language. So far, this innovation of putting it in the Bluebook I think has worked surprisi... | 65 |
fomc | 2,004 | I'm just trying to caution everyone not to think that the balance of risks formulation is going to be a panacea because it really wasn't before and I don't think it will be now. | 36 |
fomc | 2,004 | Well, that's something we are about to find out. If there are no further questions and this is acceptable, would you kindly read the appropriate language? | 30 |
fomc | 2,004 | I'll begin with the directive itself, which is on page 14 of 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 conditions in r... | 187 |
fomc | 2,004 | Call the roll, please. | 6 |
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 | The last item on our agenda is to confirm that the date of our next FOMC meeting is August 10. Before we adjourn, I'd like to request that the members of the Board of Governors adjourn to my office to address the issue of the discount rate. Today we have an extraordinary situation in that all twelve Reserve Banks are r... | 123 |
fomc | 2,004 | Good morning, everyone. Would somebody like to move approval of the minutes of June 29 and 30? | 22 |
fomc | 2,004 | So moved. | 3 |
fomc | 2,004 | Without objection. Will somebody move the election of Scott Alvarez to serve as General Counsel until the election of a successor at the first meeting of the Committee after December 31, 2004? | 38 |
fomc | 2,004 | So moved. | 3 |
fomc | 2,004 | Is there a second? | 5 |
fomc | 2,004 | Second. | 2 |
fomc | 2,004 | Without objection, so ordered. Dino Kos, you're on. | 12 |
fomc | 2,004 | 1 Thank you very much, Mr. Chairman. I'll be referring to the charts that Carol Low circulated a short time ago. During the intermeeting period, market participants scaled back their forecasts for U.S. economic growth--in part because of rising oil prices--and the effects were reflected in expectations of a more gently... | 1,752 |
fomc | 2,004 | Is it possible that the presumption in the market that the federal funds rate will follow a certain pattern--prior, let's say, to the market's move last Friday after the employment report--has created an anchor to the structure of rates that, by its very nature, delimits the extent of volatility? That could be an expla... | 304 |
fomc | 2,004 | Let me answer that in two ways. First, guessing where convexity-related hedging might kick in is as much an art as it is science. What some of the dealers are talking about is that at a rate of about 4 percent we might see some kind of buying or hedging kick in. On the second aspect-- | 66 |
fomc | 2,004 | The answer is that that's likely. Obviously, if the duration is falling, investors would be getting increasingly uncomfortable. But that's not where the big change is obviously. | 32 |
fomc | 2,004 | No. On the second point of where the rate might need to be to trigger a refinancing wave, the universe is pretty limited, as you say. In the spring, when the ten-year rate got to about 3.9 percent, a good deal of refinancing occurred. So, really, the candidates for refinancing are the mortgages that were originated ove... | 117 |
fomc | 2,004 | Those are the only candidates. | 6 |
fomc | 2,004 | Yes, exactly. And the number is probably not huge; it's nowhere near as large as what we saw, say, in late '02 and the spring of '03. | 35 |
fomc | 2,004 | Home purchase originations have been high, but they haven't been high long enough to make a big difference. | 21 |
fomc | 2,004 | Again, might it have some effect? Yes. Would it have the same kind of effect that we saw in those earlier periods? Probably not. | 29 |
fomc | 2,004 | Another way of putting it, Mr. Chairman, is that the wave of refinancing has made the distribution of mortgages more concentrated, and it isn't until rates get down to the levels they were a year or so ago that we would really hit the mass of that distribution. While it is true that the amount of new financing in the l... | 280 |
fomc | 2,004 | That's true. You know, on the chart where Dino has those red dots in the regression, the latest observation was right on the new curve. | 29 |
fomc | 2,004 | It really does look as if that line has rotated. So although volatilities are low, that isn't preventing the market from repricing when news comes out. That may say something about market functioning, and that would be a more favorable interpretation than the lesson you took away. | 55 |
fomc | 2,004 | Also it's a difference between historical observed volatility and the implied volatility. | 13 |
fomc | 2,004 | Vice Chair. | 3 |
fomc | 2,004 | On this same subject though, Vincent, isn't it true that the distribution, derived from options, about the expectations for the fed funds path doesn't appear to have narrowed substantially? There's still a fairly broad distribution in expectations, a fair amount of uncertainty still priced in around the path. I don't t... | 83 |
fomc | 2,004 | But the slope going forward has not changed. | 9 |
fomc | 2,004 | No, that has not changed. I'm just talking about whatever concerns some people here may have about market participants displaying excessive reassurance. If market participants feel reassured, it hasn't produced substantially more confidence around that band. I think that, combined with the fact that expectations are mo... | 69 |
fomc | 2,004 | Mr. Chairman? In fact, there's a chart in the Bluebook that shows that uncertainty about near-term policy has risen over the last few months. It has not risen a lot, and the uncertainty is still pretty low, I think, but chart 1 shows that it has gone up; it hasn't gone down. | 64 |
fomc | 2,004 | An interesting point is that the implied volatility on the S&P 500 is really startling. Whenever we see things of that nature, we say, well, what goes down must go up--the inverse law of gravity. | 44 |
fomc | 2,004 | But that's much more pronounced in the sustained interest rate-- | 11 |
fomc | 2,004 | The interest rate is essentially anchoring the equity premium. What we're really saying is that there can be an element of too much good news. I think that's where we have to be careful. Further questions for Dino? Would somebody like to move approval of the Desk's transactions? | 55 |
fomc | 2,004 | So moved. | 3 |
fomc | 2,004 | Without objection, they are approved. We're now at the staff reports. Dave Wilcox and Karen Johnson. | 21 |
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