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fomc | 2,005 | President Poole. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I'd like to confine my remarks at this time to the points that you raised a few moments ago. The importance of the long-term nominal anchor is great, and I think it has a lot to do with enhancing productivity and the other things that Governor Bies was talking about. But I think it's very impor... | 273 |
fomc | 2,005 | May I ask what evidence there is that that is indeed the case? Do you have any evidence that knowledge of a central bank committee's specific numerical judgment as to the appropriate range for inflation does, in fact, anchor longer-term expectations? Obviously, if it does, it's tremendously important. Is there evidence... | 65 |
fomc | 2,005 | No, I agree with Ben Bernanke that evidence in this area is very, very hard to come by. But I'm saying that is one of the benefits I would see, basing my view mainly on-- | 42 |
fomc | 2,005 | If it were to happen, it would be an obvious benefit, but-- | 15 |
fomc | 2,005 | One thing that I do know, and I can speak to evidence in this sense, is that since the Korean War, meetings of this Committee have often focused at particular times on a concern that policy actions would be viewed by the market as upsetting the inflationary environment. When you go back and look at the minutes of these... | 174 |
fomc | 2,005 | I remember saying exactly that. | 6 |
fomc | 2,005 | So I can point to evidence that that happened numerous times around this table. | 15 |
fomc | 2,005 | Well, no. The reason--and I remember it at these meetings--was that, indeed, we were looking at the question of inflationary imbalances building up. The point is that we knew in retrospect that the economy was tilting downward, but there were innumerable occasions when inflationary imbalances were building up and the e... | 138 |
fomc | 2,005 | It is not evidence that an announced target would help to anchor expectations. I'm making that judgment on the basis of what I think I understand about the process. | 31 |
fomc | 2,005 | Well, you obviously have opinions or else you wouldn't be making the statement. | 15 |
fomc | 2,005 | But I do think that well before 1979--in the whole period since the Korean War--one sees over and over again at business cycle peaks that this Committee was very concerned that it would upset the inflation expectations environment by acting prematurely. If you're asking for evidence, I think there is one case, strangel... | 131 |
fomc | 2,005 | That's qualitative. | 3 |
fomc | 2,005 | That was qualitative. That's correct. | 7 |
fomc | 2,005 | I don't think anybody disagrees on the notion of making our conviction of price stability on both sides clear. | 21 |
fomc | 2,005 | Right. | 2 |
fomc | 2,005 | The issue is whether there is a critical advantage of a specific number rather than a range or probabilistic view or some qualitative view. That's what we're discussing. I think we have agreed that low inflation is superior, and I think we all have a general view of where low inflation is with respect to the indexes. T... | 92 |
fomc | 2,005 | I think in that case that if we had previously announced a range, the market--well before inflation got close to or below the bottom of the range--would have been saying that the FOMC will be responding. The market would have been expecting us to move the funds rate down because inflation was getting down to or below t... | 140 |
fomc | 2,005 | I think they still are. | 6 |
fomc | 2,005 | Yes, they probably still are. | 7 |
fomc | 2,005 | President Stern. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. Let me make just a few broad comments. Normally, when I start thinking about these kinds of issues, I ask myself what is broken that we're trying to fix. Here I ask myself: Do we want to be more explicit about a price or inflation objective? My answer to that is "yes," but it's not because I'm ... | 435 |
fomc | 2,005 | President Santomero. | 5 |
fomc | 2,005 | Thank you, Mr. Chairman. I believe that it is important for the FOMC to define inflation goals and to do so numerically. I further believe that we can gain the full benefits of our reputation from recent history by committing to a specific definition of price stability going forward. As some of you may know, I recently... | 579 |
fomc | 2,005 | You're using the term "inflation targeting" to mean? | 12 |
fomc | 2,005 | Well, this broad notion of saying that we have a numerical target and here's what the number or the range is. | 23 |
fomc | 2,005 | But you're going beyond what's in the text. Are you using the terms interchangeably or are you talking-- | 21 |
fomc | 2,005 | Yes, I am using it to mean this broad notion of our saying that we as a group have in mind a number that we want for inflation. | 30 |
fomc | 2,005 | I ask because inflation targeting has a very specific operational meaning. | 12 |
fomc | 2,005 | I understand your point. That's why I think, quite frankly, that by arguing about the details we lose sight of what we're trying to do. What we have done up to this point is to agree on a rather open notion that we think the economy operates most effectively in a stable, low-inflation environment, and we have made that... | 484 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | Vincent has asked each one of us to consider whether an explicit numerical specification of price stability would be helpful to us in furthering the achievement of our goals for price stability and maximum sustainable employment and in our communications either externally or internally. My own answer to that question i... | 1,330 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | I want to start by commending the staff for the background papers that in my view were quite thorough and balanced. The question today is whether the FOMC should or should not adopt an explicit numerical price-related objective and, if so, how. My feeling is that this is a rather narrow question as it has been presente... | 935 |
fomc | 2,005 | President Yellen. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I also wanted to begin by complimenting the staff on their excellent and balanced paper and presentation. When I first participated in this Committee back in 1994, I believed that inflation by any measure exceeded the comfort level of every FOMC participant. The goal of lowering inflation over ... | 1,269 |
fomc | 2,005 | Governor Kohn. | 4 |
fomc | 2,005 | As if on cue. [Laughter] Thank you, Mr. Chairman. Let me begin by commenting on a couple of the things that you said at the beginning. I think there's a consensus--I know that there's a consensus--around this table that price stability, approximated by very low, stable inflation, is the appropriate long-run goal of thi... | 1,498 |
fomc | 2,005 | Thank you. Let's take a break now for maybe 10 or 15 minutes. We'll come back and see if we can get fully around the table by the end of the day. | 37 |
fomc | 2,005 | President Pianalto. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I would also like to start by thanking the staff for the great material on this subject; I found it very helpful. And I'd like to be on record as stating that I do regard price stability as the most important contribution that we can make to the nation's long-term economic welfare. I also belie... | 867 |
fomc | 2,005 | President Guynn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I also thank the staff for the helpful papers. My own views are closest to Cathy Minehan's and Don Kohn's. Like almost everyone who has spoken, I would remind all of us that we have been very successful in helping to achieve a long period of stable and low inflation. I think we have also achiev... | 650 |
fomc | 2,005 | President Moskow. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. On your specific question about low and stable inflation, I, too, believe it is very important. I had similar experiences to those Susan Bies had in private industry in the late '70s and the '80s, and I share her views completely. I also had some experiences in government in the late '60s and e... | 968 |
fomc | 2,005 | Thank you. Governor Gramlich. | 7 |
fomc | 2,005 | Thank you, Mr. Chairman. A lot of points have been put on the table already, so I feel a bit like I'm taking an oral exam, but here goes. First question, is low inflation desirable? Yes, I definitely think it is. | 51 |
fomc | 2,005 | That's one right answer! [Laughter] | 9 |
fomc | 2,005 | I'm going to get to meatier things! [Laughter] Is it desirable to have an anchor? I think it is, and I think Bill Poole gave the reason--that we actually have more flexibility to move against unemployment if we have a well-understood anchor. On the other side, I'm gratified that nobody is really in favor of a full, for... | 1,059 |
fomc | 2,005 | Governor Ferguson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. To start, as I've told a few of you, I'm struck by how easily one moves in this Committee from being a brash "young Turk" to being part of the "old guard." So, as a former young Turk and now a member of the old guard, I will speak for the status quo. You've raised a number of questions, and oth... | 1,855 |
fomc | 2,005 | Governor Bies. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. On this issue, while my tenure is much shorter than yours and others around the table, I'm going to argue that I'm really in the "status quo improvement" camp today. Some of my reasons are similar to those already mentioned, but I want to throw a couple of other reasons on the table for coming ... | 1,022 |
fomc | 2,005 | Governor Olson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. If I may speak initially to the first question regarding my attitude toward inflation in general--and I learned about the ravages of inflation as a banker when I saw people's net worth disappear and collateral values disappear--I have a strong anti-inflation bias. And I came into this job belie... | 797 |
fomc | 2,005 | Vice Chair. | 3 |
fomc | 2,005 | Thank you. I think anybody who looks at U.S. monetary policy today and in the recent past would have to be impressed with what this Committee has achieved. And I can't really imagine any other regime under which I'd rather live and have to make policy. There are two aspects of our current regime that give me some disco... | 1,285 |
fomc | 2,005 | President Poole wanted to say a final word. | 10 |
fomc | 2,005 | Thank you, Mr. Chairman. I spoke very briefly earlier and made just a few short comments. I have three points I want to make. Vice Chairman Geithner has raised one of them. I believe this issue about succession--which I think you can argue either way, but I don't intend to argue it one way or the other--is important. T... | 393 |
fomc | 2,005 | Thank you, everybody. This has been an extraordinarily interesting conversation. Let me tell you where I come out on this issue. I've been very surprised and extraordinarily pleased with our ability over the past several years to get acceptance of the notion that price stability is a necessary condition for maximum sus... | 2,485 |
fomc | 2,005 | 2 Thank you, Mr. Chairman. Markets in the intermeeting period can perhaps best be described by the words "more of the same." For example, short-term interest rates continued a slow upward climb, as shown in the top panel of page 1 of your handout. Market participants are pricing in 25 basis point increments of tighteni... | 1,905 |
fomc | 2,005 | Any questions? [Pause] If not, would someone like to move approval? | 16 |
fomc | 2,005 | Yes. So moved. | 5 |
fomc | 2,005 | Without objection, I think we can go to a recess at this stage. The Presidents have a dinner to attend. I look forward to seeing you all tomorrow at 8:59 a.m. [Laughter] February 2--Morning Session | 49 |
fomc | 2,005 | Good morning, everyone. We'll continue our meeting with the chart show. Larry Slifman, Sandy Struckmeyer, and Karen Johnson will give the presentation. | 33 |
fomc | 2,005 | 3 Thank you, Mr. Chairman. We'll be referring to the package of materials entitled "Staff Presentation on the Economic Outlook." As you know from reading the Greenbook, the only material change in our forecast since the December FOMC meeting concerns prospects for the near term. So, after briefly reviewing some of the ... | 2,296 |
fomc | 2,005 | Your next chart presents the outlook for the labor market. With real GDP projected to grow at slightly above its potential pace, we expect nonfarm payrolls (the upper left panel) to expand at an average pace of about 200,000 per month through 2006. As you can see, that pace is a bit above the rate of job creation last ... | 1,500 |
fomc | 2,005 | Your first international chart reviews financial developments for the major foreign industrial countries. After appreciating early last year, the nominal exchange value of the dollar in terms of the other major foreign currencies (the black line in the top left box) changed little through September. It subsequently dec... | 2,709 |
fomc | 2,005 | The final chart presents your economic projections for 2005 and 2006. As shown in the upper panel, the central tendency of your forecasts for real GDP this year is 33/4 to 4 percent. The unemployment rate is projected to be 51/4 percent, while the central tendency for core PCE inflation is 11/2 to 13/4 percent. As indi... | 153 |
fomc | 2,005 | Do you have a forecast of current account balances for the world, including the discrepancies? | 17 |
fomc | 2,005 | I do. Do you want me to give you some figures? | 13 |
fomc | 2,005 | I'd actually like to see the whole table. Does it have data for individual countries? | 17 |
fomc | 2,005 | We have several tables that cover all of the countries we forecast and then we have the global-- | 19 |
fomc | 2,005 | Could somebody just bring it around to me rather than have you read it? Other questions for our colleagues? President Minehan. | 25 |
fomc | 2,005 | I was a little surprised at the forecast of no decline in the value of the dollar. Your alternative simulation seems as though it's relatively close to what we've experienced since 2002. You had mentioned that the dollar is down 27 percent since the peak in 2002. That's roughly three years, and that's not terribly diff... | 94 |
fomc | 2,005 | No, no. You might think of our Greenbook forecast for the dollar as a technical assumption. We have adopted a "random walk" frame of mind when it comes to forecasting the dollar, based on two things. First of all, the research that we ourselves have done in the articles that members of the Board staff have written show... | 434 |
fomc | 2,005 | So, depending on how one feels about the likely path of the dollar, there is some definite sense of risk to the forecast associated with that. | 29 |
fomc | 2,005 | Yes. But I would say that over any short time horizon, like the next two years, there's as much upside risk as downside risk. The dollar rose substantially in the first half of 2004; it rose in the early part of this year. Even though many of us have argued at great length that there are reasons to think that over time... | 108 |
fomc | 2,005 | I have one further question. I've been surprised to read in some of the market publications--the newsletters from J.P. Morgan and so forth--that a number of market participants appear to be getting more convinced, based on their reading of the political tea leaves, that a move on the Chinese currency is going to occur ... | 83 |
fomc | 2,005 | We haven't taken the step of, say, putting that into an alternative simulation in the Greenbook, which maybe we should do. But we have been thinking about the issue and what alternatives might be good--that is, effective and productive--and what alternatives might be counterproductive. There was a time about three week... | 186 |
fomc | 2,005 | Do you have a bigger-than-a-bread-box feeling about how that will work? | 17 |
fomc | 2,005 | I could make it bigger than a bread box, depending on whether the rest of Asia reacts in some explicit manner. I say that because the pegging to the dollar is a device for stabilizing exchange rates among the Asian trading partners. So if China moves in certain ways, that might trigger a reaction on the part of its tra... | 279 |
fomc | 2,005 | Thank you. | 3 |
fomc | 2,005 | I guess I will commit to trying to do some sort of analysis of this issue or an alternative simulation in the next Greenbook. I think that would be a helpful thing to do. | 37 |
fomc | 2,005 | Maybe not on my say-so alone. | 8 |
fomc | 2,005 | Governor Gramlich. | 4 |
fomc | 2,005 | Just as a derivative question, relating to chart 13, Karen. You were commenting on the disappointing performance of exports, and one of your stories was the rather sharp downturn in exports to "Other Asia." Could you elaborate on that a little bit? Is that, in your view, importantly or unimportantly affected by the Chi... | 71 |
fomc | 2,005 | I don't know that I would link it to that particularly. I think it is in part, but I can't tell you how much, a result of the integration of trade--or reintegration of trade--that's going on in Asia, so that exports that previously came to us from Japan now pass through China for some final stage of processing. There's... | 265 |
fomc | 2,005 | Governor Bernanke. | 4 |
fomc | 2,005 | Does your simulation of the effect of the 10 percent decline in the dollar include the effects on foreign countries' income from facing a more appreciated exchange rate? | 31 |
fomc | 2,005 | Yes, we did that in our global model. And those countries--given that prices in their currency for the goods they sell to the United States go up because the dollar is depreciating--actually earn some income, which is then spent on U.S. exports. So in that sense it accounts for all the money that is spent on trade. It ... | 80 |
fomc | 2,005 | It also affects their import demands. | 7 |
fomc | 2,005 | Yes, that's what I'm saying. | 7 |
fomc | 2,005 | That's from the income effects. | 6 |
fomc | 2,005 | Yes. Now, the model has the usual Houthakker and Magee asymmetry in it, but the move down of the dollar is very stimulative. In our model it would be a very stimulative shock to the United States, and it would be a contractionary shock to almost all of our trading partners. | 64 |
fomc | 2,005 | The reason I ask is because your simulation raises the question of whether the derivative is the right sign on the current account with respect to the dollar. Given the effect that the falling dollar has on our interest rates and, therefore, on our capital income payments, there seems to be so very little effect on the... | 68 |
fomc | 2,005 | Right, but because of the interest rate effect. Now, it's possible that the model doesn't fully capture valuation effects. In the direct investment account, the fact that the dollar is depreciating means that every euro earned by a U.S. subsidiary is now worth more dollars rather than the same number of dollars. So thi... | 93 |
fomc | 2,005 | Why can't you capture it? It seems like a straightforward-- | 12 |
fomc | 2,005 | Well, our people do their best, but the financial flow part of the model is less fully articulated than is the real side of the model. | 29 |
fomc | 2,005 | It's not that you don't have the data. You do. | 12 |
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