The Board meeting, Mr. Chairman.

There is also the issue of the directive.

Mr. Chairman.

“The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to ¼ percent. Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets ...

Yes.

On the former, just a guess, I would think that without any target federal funds rate—and given the well-known issues that we have been discussing about pressures on banks—it is possible that the prime rate would not be reduced by the full extent of the implicit reduction in ...

I believe it is public.

I do have that guideline here, and you are correct, President Lacker. The first paragraph of the guideline says that System open market operations in agency issues are an integral part of open market operations, designed to influence bank reserves, money market conditions, and monetary aggregates. The second paragraph says ...

Well, one reason might be that, if you gave some weight to the view that very low interest rates do have costs in financial markets and you wanted to preserve some rhetorical or substantive leeway, you would want to have a somewhat positive interest rate, to the degree that you ...

President Lacker, the forces that we were thinking would bring it above ¼ were largely a risk premium—the difference between federal funds, which have some amount of credit risk, and deposits at the Federal Reserve, which of course do not. I think we would not anticipate that we would ...

Thank you, Mr. Chairman. I will be referring to the package labeled “Material for FOMC Briefing on Monetary Policy Alternatives.” This package includes the October policy statement, draft policy statements for this meeting, and associated draft directives to the Desk. Alternatives A and B have been revised somewhat relative to ...

I agree.

The staff provided eight questions to help frame your discussion, and those questions are included in the package we have placed before you—a single page with a blue cover sheet. I would like to comment briefly on each of them.

The first question deals with the issue of whether ...

Thank you, Mr. Chairman. As the Committee requested at your last meeting, the staff has provided background for your discussion today of issues related to the zero lower bound on nominal interest rates. Ten days ago, we sent you 21 notes covering lessons from the U.S. and Japanese experiences ...

Thank you, Mr. Chairman. I will be referring to the version of table 1 that was distributed to you on Monday. It is reproduced in the package before you labeled “Material for Briefing on Monetary Policy Alternatives.” Changes in the language relative to the Bluebook version are shown in blue ...

That’s not how I would think about it. I would think about it as giving, if it works, depository institutions increased incentives to expand their lending by providing them with a great deal more funding than they actually need and thereby increasing spending propensities. I would see this more ...

President Lacker, I would say that there are a number of strategies that the Committee could think about if it were at the point that it felt it couldn’t lower the federal funds rate any further, be that zero or some higher level. One would be communications that suggest ...

I will be referring to the separate package labeled “Material for Briefing on FOMC Participants’ Economic Projections.” Exhibit 1 shows the central tendencies and ranges of your current forecasts for 2008; corresponding information about the Committee’s most recent projections, those from June, is shown in italics, and Greenbook projections ...

We would have to look at that. I think there are more than just the three GSEs that we usually think of. But they’re the biggest institutions that participate in the federal funds market.

There’s not really a policy reason. I would say there’s a legal reason. The statute allows us to pay interest only on balances held by depository institutions. My own view is that it would be a good thing if we were able to pay interest to the GSEs ...

I would say that we may well be in a situation where the interest rate on excess reserves is the effective tool for controlling the federal funds rate, and there may be a spread. As Bill said, we are in the process of learning how this works, and it may ...

They do not.

President Lacker, I think we’re going to need to proceed somewhat adaptively. We’ll be going from one type of system, in which there has been no remuneration on excess reserves, to one with a rate that’s fairly close to—50 basis points under—the federal funds rate ...

Thanks, Mr. Chairman. As the Chairman indicated, the TARP legislation includes a provision that accelerates the effective date of the authority to pay interest on reserves from October 1, 2011, to October 1, 2008. The Federal Reserve staff believes that we’re ready to start paying interest on reserve balances ...

Thanks, Mr. Chairman. I’ll read a resolution regarding the swap lines: “The Federal Open Market Committee authorizes the Federal Reserve Bank of New York to take the following actions to amend the existing temporary swap arrangements with foreign central banks as follows: with the Bank of Canada, to increase ...

That you are not particularly ready to change your stance of policy.

I agree. The fact that the first sentence of the risk assessment has a parallel treatment of the upside and downside risks may communicate a bit the sense that you are not ready to ease immediately.

I will be referring to the package labeled “Material for FOMC Briefing on Monetary Policy Alternatives and Trial Run Survey Results.” The results of the survey are shown in exhibit 2. In the interest of time, I will not cover them this morning. The Subcommittee on Communications plans to be ...

Yes, Mr. Chairman. Everybody should have it.

January 30.

I would say, President Fisher, that the substitution that you are suggesting seems plausible to me, but I would also say that the first sentence of alternative B already does suggest some pretty significant concerns about inflation.

Thank you, Mr. Chairman. If you prefer, in the interest of time, I can cut back my remarks to focus just on the policy statement and not the general background. I will be referring to the version of table 1 included in the package labeled “Material for FOMC Briefing on ...

The actual real federal funds rate is above r* under any measures—so in other words, our outlook is the same. These are just different yardsticks for assessing our basic view of the stance of policy.

Yes.

Well, in any given quarter, it’s four quarters ahead.

Unfortunately, President Lacker, I haven’t made that computation, so I can’t confirm that.

Thank you, Mr. Chairman. I will begin by referring to the draft announcement language in table 1, included in the package labeled “Material for FOMC Briefing on Monetary Policy Alternatives.” As Chairman Bernanke noted yesterday, this version is only slightly revised from the version discussed in the Bluebook. Rather than ...

I will be referring to the separate package labeled “Material for Briefing on FOMC Participants’ Economic Projections.” The top two sections of table 1 show the central tendencies and ranges of your current forecasts for the first and second halves of 2008; central tendencies and ranges of the projections published ...

Well, I certainly think at this point the three that you mentioned first. At this stage, if we are going to go to with three, we might want to think about putting all five out, just to flesh out all parts of the spectrum and acknowledge that option 1 could ...

Absolutely, we agree. Of course, when the Board adopted the primary credit program in 2003, we gave a lot of thought before that and did considerable work after that to try to minimize the amount of stigma by trying to make very clear to banks that in our view use ...

I think that’s worth some further thought, Governor Kroszner. One issue though, as I’m sure you know, is that the Board is required by law to publish weekly information on the individual Banks’ balance sheets as well as the consolidated balance sheet with a certain amount of detail ...

Well, the governance issues are that the FOMC is in charge of open market operations and setting the target for the federal funds rate, at least under current approaches to policy. The legislation specifies that the Board is in charge of setting the rates paid on balances to institutions. For ...

My impression is, as Bill said, that it is small and there may not even be positive costs if you confine it to excess. The issues of paying interest on required reserves are possibly a little more troublesome, but that may be viewed as a worthwhile cost to undertake at ...

If I may start with the last question, we can work our way up or around the list. On pursuing legislative authority, the Federal Reserve is interested in accelerating that authority. We have had some conversations with congressional staff about this. For instance, the staff of Senate Minority Leader McConnell ...

Governor Mishkin, to state the obvious, we’d want to avoid that situation completely. We want preparation and consultation with banks ex ante as to how they would react under various subparameterizations.

So the communication with banks regarding their reserve management is extremely simple compared with what we could expect here in the United States.

Maybe I could just take the second question, and Spence or Jim may want to take the first. On the corridor approach, for other countries that are using it—I’m thinking of the Bank of Canada in particular here—their institutional set-up allows them extremely precise control over the ...

President Hoenig, I would say that we believe we already have a fairly good sense as to how paying interest on the required reserve balances and on excess reserves would work, at least qualitatively. We do think it would be an acceptable means of implementing monetary policy. As Jim noted ...

Thank you, Mr. Chairman. We will be referring to the package of material labeled “Implications of Interest on Reserves for Monetary Policy Implementation.” Today, the staff will report on work prompted by two changes the Congress made to the Federal Reserve Act in October 2006 and will seek your guidance ...

We must have used that just in March. It was not here in January.