FOMC Meeting Transcript
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Meeting of the Federal Open Market Committee Meeting July 5-6, 1994 A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., beginning on Tuesday, July 5, 1994, at 2:30 p.m. and continuing on Wednesday, July 6, 1994, at 9:00 a.m. PRESENT: Mr. Greenspan, Chairman Mr. McDonough, Vice Chairman Mr. Blinder Mr. Broaddus Mr. Forrestal Mr. Jordan Mr. Kelley Mr. LaWare Mr. Lindsey Mr. Parry Ms. Phillips Messrs. Hoenig, Keehn, and Melzer, Alternate Members of the Federal Open Market Committee Messrs. Boehne, McTeer, and Stern, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis respectively Mr. Conrad and Ms. Minehan, First Vice Presidents, Federal Reserve Banks of Chicago and Boston respectively Mr. Kohn, Secretary and Economist Mr. Bernard, Deputy Secretary Mr. Coyne, Assistant Secretary Mr. Gillum, Assistant Secretary Mr. Mattingly, General Counsel Mr. Patrikis, Deputy General Counsel Mr. Prell, Economist Mr. Truman, Economist Messrs. Beebe, Goodfriend, Lindsey, Promisel, Siegman, Simpson, and Ms. Tschinkel, Associate Economists Ms. Lovett, Manager for Domestic Operations, System Open Market Account Mr. Fisher, Manager for Foreign Operations, System Open Market Account -2- Mr. Winn, Assistant to the Board, Office of Board Members, Board of Governors Mr. Ettin, Deputy Director, Division of Research and Statistics, Board of Governors Mr. Madigan, Associate Director, Division of Monetary Affairs, Board of Governors Mr. Struckmeyer and Ms. Zickler, Assistant Directors, Division of Research and Statistics, Board of Governors Ms. Edwards 1/ and Mr. Oliner 1/, Economists, Divisions of Monetary Affairs and Research and Statistics respectively, Board of Governors Ms. Low, Open Market Secretariat Assistant, Division of Monetary Affairs, Board of Governors Mr. Bennett, Ms. Browne, Messrs. Davis, Dewald, Lang, Rolnick, Rosenblum, and Scheld, Senior Vice Presidents, Federal Reserve Banks of New York, Boston, Kansas City, St. Louis, Philadelphia, Minneapolis, Dallas, and Chicago respectively Messrs. Guentner and Sniderman, Vice Presidents, Federal Reserve Banks of New York and Cleveland respectively Transcript of Federal Open Market Committee Meeting of July 5-6, 1994 July 5, 1994--Afternoon Session CHAIRMAN GREENSPAN. Before we get started on our formal proceedings, I have several announcements. First, we'd like to welcome the new Vice Chairman of the Federal Reserve Board to his first Federal Open Market Committee meeting. MR. BLINDER. Thank you very much. CHAIRMAN GREENSPAN. And my next news--the unwelcome news--is that Si Keehn is leaving and this is his final meeting. It says here that his first meeting was on July 6, 1981. Si, of course, will return for the retirement luncheon following the August 16 meeting. This is also First Vice President Bill Conrad's first meeting. Bill is an observer at this meeting, but he will represent the Chicago Bank at future meetings until a new president is selected. Finally, Karl Scheld will be attending his last meeting. He has been attending FOMC meetings regularly for nearly 25 years. I'd like to say a few remarks about Karl at the luncheon tomorrow. Getting on to formal business, would somebody like to move approval of the minutes of the May 17 meeting? VICE CHAIRMAN MCDONOUGH. So move. CHAIRMAN GREENSPAN. Is there a second? MR. KELLEY. Second. CHAIRMAN GREENSPAN. Without objection. I'd now like to turn to Peter Fisher for the report on foreign currency operations. Peter. MR. FISHER. Thank you. [Statement--see Appendix.] CHAIRMAN GREENSPAN. Questions for Peter? Ed. MR. BOEHNE. How much discretion did you have here working with the Treasury in terms of the timing of the intervention? MR. FISHER. Well, the events of the morning gave me precious little time. The final decision to intervene was not made until sometime between 9:15 and 9:30 a.m. There had been an uptick in the dollar shortly after 9:00 a.m. I must tell you I fear that was the result of some leakage out of European central banks. I was very nervous about trying to enter the market as the dollar was coming down and thus I was in rather a hurry to try to get into the market before it came off that brief high. So, when I did get approval from the Treasury to operate in that market, I jumped right in. MR. BOEHNE. And the immediate response of market participants was to sell dollars? MR. FISHER. No, I don't think that was the immediate response. The morning operation had a more beneficial effect. The dollar moved up--I don't remember the exact figures right now. It 7/5-6/94 moved up appreciably over the course of an hour or so. It then began to come off when we pulled out of the market and in the afternoon when we tried to reinforce the dollar we really met a wall of dollar/marks. MR. TRUMAN. President Boehne, just one comment on your first question from an historical perspective, which I think is the perspective you are coming from: The decision to intervene on that day was a joint decision, so in that sense Peter had no discretion. That is no different than it has been. But once the decision was taken, it was then largely in the Desk's hands as to how they would handle the intervention. That was in contrast to some instances of micro-management over the course of recent years. I think Peter had been given quite a large amount of resources for his potential use, and although he consulted about his change of tactics, the tactics were decided by the Desk rather than by the Treasury. MR. BOEHNE. Thank you. CHAIRMAN GREENSPAN. Governor Lindsey. MR. LINDSEY. Reading the transcript from the last meeting-- unfortunately these transcripts will come back to haunt us all--but I am going to haunt you for a moment, if I may. [Laughter] The reason given for the previous intervention in late April and early May was that it was to underline a change in policy. Was there any change in policy that this intervention underlined? MR. FISHER. No, and I think that may have been one of its problems. I think when I spoke previously we were referring to both Treasury and Federal Reserve policy. MR. LINDSEY. Right. MR. FISHER. Looking back at last week, I think there was a change in Treasury policy. The clarity with which it was expressed evolved over the course of the week in which we operated and only became clear, I would say, toward the end of the day and subsequently. There was a change in the statements Treasury officials were making. They were now looking for the dollar to go higher rather than lower. MR. LINDSEY. The market's reaction to that increased clarity, as I recall, was to send the dollar down. MR. FISHER. I don't think the increased clarity was sending the dollar down. I really don't view it that way. Late Friday afternoon an unnamed Treasury official finally said they would rather have the dollar go up than down, not in so many words but that was the gist of it. I don't think that caused the dollar to go down rather than up. We did have a very regrettable series of headlines as a result of the President's interview on the radio. I think the overall remarks the President made were something any rational person could agree with. They map rather well with remarks I have made here to the effect that there are fundamental reasons for the mark and yen to be strong but that their appreciation is getting a little overdone, and we think it is prudent to intervene. This came out in a series of headlines. The first said "Clinton thinks exchange rates are puzzling." And subsequent headlines were "Clinton sees reasons for mark to rise versus dollar; Clinton sees reasons for yen to rise 7/5-6/94 versus dollar." Our afternoon operations had to face these headlines literally head-on. That, I think, was an important cause of the dollar's weakening that afternoon. MR. LINDSEY. Did the Treasury know about the President's forthcoming statements? MR. FISHER. I was not aware of the President's interview prior to seeing it come across the wire. MR. LINDSEY. Was the President aware that we were going to intervene? MR. FISHER. I don't know that for a fact. I think he had been briefed on the Treasury's views on Thursday. But as I said, the final decision to intervene was made by Secretary Bentsen between 9:15 and 9:30 a.m. on Friday morning for their part. MR. LINDSEY. I have a follow-up question. The transcript for the last meeting reads that I was asking you "How long do you expect the latest intervention to hold? I suppose the intervention last August bought us 9 or 10 months. I assume the second intervention"--which we had just had in late April and early May-- "will buy us something less than 9 or 10 months." It bought us four weeks. "Do we have any ammunition left?" You said at the May meeting "I think the operation and the action of the Bundesbank last week and whatever the Committee does in the realm of the expected, if I can put it that way, will tend to stabilize the dollar/mark rate." Well, we didn't stabilize it. How much time has this intervention bought us? With the last, we went from nine to ten months down to four weeks. Will this intervention buy us four hours or four minutes? It bought us about twenty minutes, I think.