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21 Feb 2014
2008 Fed transcripts offer insight into what goes on behind closed doors
FXStreet (London) - The US Federal Reserve today released the transcripts from its 2008 Federal Open Market Committee meetings. While they offer little if anything in the way of guidance for current Fed thinking, they nevertheless offer a fascinating insight into the workings of the FOMC beyond the usual carefully-considered minutes and post-meeting statements.
Dealing with the crash
The transcripts give you an insight into the Fed’s thinking the day after the collapse of Lehman Brothers when it met on 16 September 2008.
Obviously the first thing that everybody did on the release of the transcript of the meeting following the collapse of the fourth-largest investment bank in the US was to Ctrl+ F “laughter” – 22 counts.
But the first instance follows Bernanke’s indication that he was open to virtually any operation to shore up market liquidity:
“After Bill makes his presentation and we have our discussion, I would like to put on the table a request for authorization for swap lines. I prefer not to put a limit on it, so I know I’ve got my own bazooka here. [Laughter]”
Imploding liquidity
The now New York Fed chairman and then System Open Market Account manager William Dudley then summarised the situation facing the Fed:
“Just to give you a snapshot of what has happened since Sunday evening, stocks are down worldwide—4 percent plus everywhere. Yesterday, the U.S. stock market was down about 4½ percent, and S&P futures indicate a lower opening today. As you might expect, there has been a big flight to quality, especially into the Treasury bill market. Ten-year Treasury note yields fell about 30 basis points yesterday, and there has been a big rally throughout the Treasury curve. The big thing, where there has probably been the most severe stress in the market, is in dollar liquidity for foreign banks. As you remember, foreign banks, especially in Europe, have a structural dollar funding shortfall, and they look to execute foreign exchange swaps or borrow in the dollar LIBOR market to fund that. There was significant upward pressure in that market—overnight LIBOR rates today were 6.44 percent—and that pressure in Europe is leaking over into our market. Yesterday the federal funds rate opened at 3 to 3½ percent. Despite our doing a $20 billion repo at our normal 9:30 a.m. time, the upward pressure on the funds rate yesterday continued. It rose to as high as 6 percent in the late morning, and that is why we came in with a second operation of $50 billion around noon yesterday.”
The Yellen Index
Amusing it current Fed Chairman Janet Yellen’s comments on US real consumption expenditures:
“My contacts report that cutbacks in spending are widespread, especially for discretionary items. For example, East Bay plastic surgeons and dentists note that patients are deferring elective procedures. [Laughter] Reservations are no longer necessary at many high-end restaurants. And the Silicon Valley Country Club, with a $250,000 entrance fee and seven-to-eight-year waiting list, has seen the number of would-be new members shrink to a mere thirteen. [Laughter]”
Fed semantics
One of the most interesting sections in the transcripts is the discussion of the language to be used in the FOMC statement following the 16 September meeting: For example:
MR. LACKER. Yes. I echo President Evans’s concern. My recollection is—and I haven’t consulted the record recently—under your predecessor there was some phrasing like “watch market developments closely” that came to be widely understood as a signal of an intermeeting move.
CHAIRMAN BERNANKE. I think it was “monitor closely.” Is that what it was?
MR. LACKER. “Monitor closely” or some language like that.
CHAIRMAN BERNANKE. Yes, “monitor closely.” Maybe you’re right.
MR. LACKER. Yes, and that gives me pause. Then, about “market”—like a lot of economists, I am willing to construe the word “market” very broadly to include intermediation mechanisms of all types and the market for commercial credit in, you know, Dillon, South Carolina. [Laughter] But I am not sure that market participants are going to take it that broadly.
They are going to take it in the sense of markets in traded financial instruments and organized exchanges and such. I just wonder if they are going to interpret it too closely as Wall Street."
Full transcripts
All in all, the minutes aren’t particularly useful for interpreting current Fed thinking, but they do offer an interesting insight as to what happens behind the closed doors of the FOMC. Full transcripts can be found here.
Dealing with the crash
The transcripts give you an insight into the Fed’s thinking the day after the collapse of Lehman Brothers when it met on 16 September 2008.
Obviously the first thing that everybody did on the release of the transcript of the meeting following the collapse of the fourth-largest investment bank in the US was to Ctrl+ F “laughter” – 22 counts.
But the first instance follows Bernanke’s indication that he was open to virtually any operation to shore up market liquidity:
“After Bill makes his presentation and we have our discussion, I would like to put on the table a request for authorization for swap lines. I prefer not to put a limit on it, so I know I’ve got my own bazooka here. [Laughter]”
Imploding liquidity
The now New York Fed chairman and then System Open Market Account manager William Dudley then summarised the situation facing the Fed:
“Just to give you a snapshot of what has happened since Sunday evening, stocks are down worldwide—4 percent plus everywhere. Yesterday, the U.S. stock market was down about 4½ percent, and S&P futures indicate a lower opening today. As you might expect, there has been a big flight to quality, especially into the Treasury bill market. Ten-year Treasury note yields fell about 30 basis points yesterday, and there has been a big rally throughout the Treasury curve. The big thing, where there has probably been the most severe stress in the market, is in dollar liquidity for foreign banks. As you remember, foreign banks, especially in Europe, have a structural dollar funding shortfall, and they look to execute foreign exchange swaps or borrow in the dollar LIBOR market to fund that. There was significant upward pressure in that market—overnight LIBOR rates today were 6.44 percent—and that pressure in Europe is leaking over into our market. Yesterday the federal funds rate opened at 3 to 3½ percent. Despite our doing a $20 billion repo at our normal 9:30 a.m. time, the upward pressure on the funds rate yesterday continued. It rose to as high as 6 percent in the late morning, and that is why we came in with a second operation of $50 billion around noon yesterday.”
The Yellen Index
Amusing it current Fed Chairman Janet Yellen’s comments on US real consumption expenditures:
“My contacts report that cutbacks in spending are widespread, especially for discretionary items. For example, East Bay plastic surgeons and dentists note that patients are deferring elective procedures. [Laughter] Reservations are no longer necessary at many high-end restaurants. And the Silicon Valley Country Club, with a $250,000 entrance fee and seven-to-eight-year waiting list, has seen the number of would-be new members shrink to a mere thirteen. [Laughter]”
Fed semantics
One of the most interesting sections in the transcripts is the discussion of the language to be used in the FOMC statement following the 16 September meeting: For example:
MR. LACKER. Yes. I echo President Evans’s concern. My recollection is—and I haven’t consulted the record recently—under your predecessor there was some phrasing like “watch market developments closely” that came to be widely understood as a signal of an intermeeting move.
CHAIRMAN BERNANKE. I think it was “monitor closely.” Is that what it was?
MR. LACKER. “Monitor closely” or some language like that.
CHAIRMAN BERNANKE. Yes, “monitor closely.” Maybe you’re right.
MR. LACKER. Yes, and that gives me pause. Then, about “market”—like a lot of economists, I am willing to construe the word “market” very broadly to include intermediation mechanisms of all types and the market for commercial credit in, you know, Dillon, South Carolina. [Laughter] But I am not sure that market participants are going to take it that broadly.
They are going to take it in the sense of markets in traded financial instruments and organized exchanges and such. I just wonder if they are going to interpret it too closely as Wall Street."
Full transcripts
All in all, the minutes aren’t particularly useful for interpreting current Fed thinking, but they do offer an interesting insight as to what happens behind the closed doors of the FOMC. Full transcripts can be found here.