Econintersect: The Board of Governors of the Federal Reserve System has released transcripts for the year 2008. This includes material not previously made public including the transcripts of conference calls (7) and meetings (8). This year compares to a previous year (2006) when there was “less excitement” in the economy during which the same number of meetings were held but no conference calls.
A few notable excerpts and summaries:
09 January 2008 Conference Call
Chairman Bernanke –
Let me tell you why I called this meeting. I have become increasingly concerned that our policy rate is too high to fully address the downside risks to growth. We have cut 100 basis points since September, and I think that may possibly have roughly offset the credit factors and the housing factors, but I don’t think that we can claim that we have done anything in the way of taking out insurance against what I think are some potentially significant downside risks.
David Stockton, Fed Economist –
We are saying, in effect, “Yes, we’ll call the recession when we see the weak spending data.” But the weak spending data will already be lagged one or two months, and that is the reason that we will be looking back, if we’re lucky to be able to do it in March, saying, “The spending data indicate that a recession may have started in December.” The current forecast is our best judgment. But I think it wouldn’t take much more in the way of negative news for us at this point to regime-shift, as you said, into recession mode. We are not quite there yet, but we are certainly worried about that possibility at this point.
Stockton also reported that inflation was higher than had been expected.
San Fransisco Fed President Janet Yellen, Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren spoke strongly for an immediate 50 bp rate cut to forestall further economic deterioration.
Minneapolis Fed President Gary Stern, Richmond Fed President Jeffrey Lacker and Dallas Fed President Richard Fisher argued against an immediate rate hike, as did several others with less strong assertions.
Vice Chairman Timothy Geithner expressed concern that the economy was weakening but made no statement on when to lower interest rates.
Chairman Bernanke advised those in attendance not to disclose that the meeting had taken place, not even to their various regional bank directors.
21 January 2008 Conference Call
Chairman Bernanke –
The purpose of this meeting is to update the Committee on financial developments over the weekend and to consider whether we want to take a policy action today. I would like to start with a brief update on the markets from Bill Dudley and take any questions for him, and then I will introduce the issue, make a recommendation, and ask for your comments following that.
Bernanke asked for a 75 bp rate increase.
The focus of the discussions was on deterioration of global stock markets primarily, although other economic data was mentioned, including exposures for insurance companies to degrading asset values.
There was discussion comparing actions needed at this time compared to the 2001 recession.
On 22 January 2008 the following statement was issued:
The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.
The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.
The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin.
In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis.
29-30 January 2008 Meeting
On 30 January 2008 the following statement was issued:
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.
Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.
The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.
10 March 2008 Conference Call
Chairman Bernanke –
I am sorry, once again, to have to call you together on short notice. We live in a very special time. We have seen, as you know, significant deterioration in term funding markets and more broadly in the financial markets in the last few days. Some of this is credit deterioration, certainly, given increased expectations of recession; but there also seem to be some self-feeding liquidity dynamics at work as well. So the question before us is whether there are actions we can take, other than monetary policy, to break or mitigate this adverse dynamic.
Bernanke suggested actions involving expand currency swap lines with other central banks, as well as opening a term securities lending facility.
William Dudley, Manager Federal Open Market Account –
[W]e may have entered a new, dangerous phase of the crisis. Major financial intermediaries are pulling back more sharply and along more margins than previously-shrinking their collateral lending books and raising the haircuts they assess against repo collateral. For a time, this adjustment was occurring in a relatively orderly way, but we appear to have passed that point about ten days ago.
……..
If the vicious circle were to continue unabated, the liquidity issues could become solvency issues, and major financial intermediaries could conceivably fail. I don’t want to be alarmist, but even today we saw double-digit stock price declines for Fannie Mae and Freddie Mac. There were rumors today that Bear Stearns was having funding difficulties: At one point today, its stock was down 14 percent before recovering a bit. Third, the problems in one financial market disturb others. We have seen the problems move from subprime to alt-A mortgages to jumbo prime mortgages and now even agency mortgage-backed securities. (Emphasis added by Econintersect.)
Econintersect note: Between 14 March and 16 March a number of “deals” were made and remade involving the New York Fed, a failing Bear Stearns and eventually JP Morgan Chase who bought out the insolvent bank in a fire sale. See Wikipedia summary.
Dudley addressed the proposed term securities lending facility (TSLF) –
If the vicious circle were to continue unabated, the liquidity issues could become solvency issues, and major financial intermediaries could conceivably fail. I don’t want to be alarmist, but even today we saw double-digit stock price declines for Fannie Mae and Freddie Mac. There were rumors today that Bear Stearns was having funding difficulties: At one point today, its stock was down 14 percent before recovering a bit. Third, the problems in one financial market disturb others. We have seen the problems move from subprime to alt-A mortgages to jumbo prime mortgages and now even agency mortgage-backed securities.
The TSLF was set up to allow swapping “illiquid mortgage-backed collateral for Treasury securities“. In essence this was a pre-TARP (Troubled Asset Relief Program) six-months before Congress was “forced” to authorize the full-blown real thing. This TSLF was not a small effort, coming in at $200 billion, about 28% of what TARP ended up. Attempts to “bail” a sinking boat were underway.
There was discussion of the problem that some “illiquid” securities in fact have no market price with which to assess value.
On 11 March 2008 the following statement was issued:
Since the coordinated actions taken in December 2007, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased again. We all continue to work together and will take appropriate steps to address those liquidity pressures.
To that end, today the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing specific measures.
Federal Reserve Actions
The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.In addition, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.
The actions announced today supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.
18 March 2008 Meeting
Much discussion here of a new “trick pony”, the PDCF (Primary Dealer Credit Facility) which has the Fed backstopping any prime dealer bank that experiences any counterparty failure so that repo markets would remain liquid. This was the focal point of the start of the meeting.
On 30 January 2008 the following statement was issued:
The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.
Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.
Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.
Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.
In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco.
PDCF is not mentioned or aluded to in the statement.
29-30 April 2008 Meeting
William Dudley, Manager Federal Open Market Account reported that the “financial market environment has improved markedly since mid-March” and cited the “improved performance of AAA-rated tranches of the last four ABX sub-prime vintages“. He referred to the “Bear Stearns liquidity crisis“. In hindsight these all reflect wishful thinking rather than astute analysis. Dudley did point out that banks were still experiencing that “term funding pressures have intensified“. He did refer to apparent “strained” balance sheet capacity for financial institutions. He made several request including two along with business as usual items:
- Increase the swap line with the ECB from $30 billion to $50 billion. (Was $20 billion start of year)
- Increase the swap line with the Swiss National Bank from $6 billion to $12 billion. (Was $4 billion start of year)
David Stockton, Fed Economist –
The spending data also have been consistent with our forecast of a marked weakening in aggregate demand and activity. After posting modest gains last year, consumer outlays and business equipment spending appear to have been at a near standstill since the turn of the year. Meanwhile, housing continues its steep descent and looks to be on track to subtract about 1½ percentage points from the growth of real GDP in the first half of the year-close to our March projection. Moreover, while we had anticipated a sharp deceleration in nonresidential construction in response to more-difficult financing conditions, that sector now appears to be turning down earlier and more sharply than we had projected. Finally, much as we had been expecting, weak domestic demand is receiving some offset from ongoing solid gains in exports.
………..
[W]hile we would agree that the risk of a very bad tail event seems to have declined, we are not ready to join others in heaving a sigh of relief just yet about the modal outlook. For one, we still see no signs of a bottom in housing.
………
I suspect that we’ve only begun to see the effects of tighter credit conditions on borrowing and spending. That restraint could prove larger and more persistent than is implicit in our baseline forecast.
This is a very long transcript (266 pages) and is largely spent discussing options with little definition of agreed action, at least from the first skim-through. The tenor of the transcript is that things are, on balance, getting better.
On 30 April 2008 the following statement was issued:
The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.
Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.
The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.
In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco.
24-25 June 2008 Meeting
Even more confusion appears to be holding sway in this meeting which also has a very long transcript (253 pages). Econintersect has not even attempted to skim this document.
On 25 June 2008 the following statement was issued, which reflects a concensus of sorts that things were getting better:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.
Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.
The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.
The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.
24 July Conference Call
Chairman Bernanke –
Two additional suggestions have been made. The first is to add an auction of options to the TSLF to allow dealers to bid for the option to have access to the TSLF over critical short periods such as over year-end. We will get more explanation of that. The second proposal is to extend the maturity of the Term Auction Facility from the current 28 days to 84 days. As you know, the Swiss National Bank and the European Central Bank have been conducting auctions pursuant to our TAF auctions. We have contacted them and told them that we are considering the extension in time. If we do that, they have both indicated that they would want to follow and do three-month auctions with us. To make that work out, we are going to propose a small increase in the ECB swap line-well, not small, but from $50 billion to $60 billion. I guess $10 billion is large money anywhere. The purpose is that they can divide that by six and have a more even number for auctions.
Discussion by Richmond Fed President Jeffrey Lacker, Kansas City Fed President Thomas Hoenig and Philadelphis Fed President Charles Plosser indicates concern that the actions taken and proposed will go too far.
John
Sources:
FOMC: Transcripts and Other Historical Materials, 2008 (Board of Governors of the Federal Reserve System)
http://www.calculatedriskblog.com/2014/02/weekend-reading-2008-fomc-transcripts.html
http://moneymorning.com/2014/02/21/five-ridiculous-revelations-fed-hearings/
http://globaleconomicanalysis.blogspot.com/2014/02/hilarious-transcripts-of-fed-minutes.html
The 2008 FOMC Laugh Track: Gallows Humor at the Federal Reserve
