How strict were the Fed's policies in 1994, 1999 and 2004?

These documents provide information six months before the FOMC's decision to set federal income (inflation) targets in February 1994, June 1999 and June 2004. This is consistent with the review of important documents for this period, including lawsuits. - Full minutes and minutes of the FOMC meeting, financial statements and evidence, and blue and green documents. This information includes an overview of the economic and financial context of each policy decision and the initial impact of the financial economy on government policy advances.

Contents

The fiscal policies of 1994 and 2004 were successful before they started to be tightened. In contrast, in 1999, when the council began to tighten monetary policy, the policy was particularly bad.

The rate of inflation and the degree of capital easing depend on monetary policy, and the board's specific unemployment and inflation targets increase over time (Table 1).

Policy management decisions are data driven and forward looking. A shift in the perceptions of FOMC members about the real economy and inflation is significant. (Table 2)

In all three cases, the panel was concerned that the long wait would lead to an undesirable rise in inflation, but it was also determined whether the financial expansion would come from optional support.

At all times, the FOMC meeting discussed the timing of the first increase in government revenue as well as the speed of the legislation tightening. In February 1994, some FOMC members considered the first 50 basis point rate hike necessary under the current circumstances, but the panel recognized that financial markets were unprepared for it, quickly and quickly, and decided to slowly begin to withdraw. The high cost of free rights. In its debate in mid-1999, the committee determined how much of the 75 simple terms from 1998 should be clawed back and how much interest would be needed to reduce energy use and prevent inflation. In June 2004, FOMC members generally agreed that the entitlement to a medium-term position should be reinstated in time, and generally felt that the coming direction of the "speed measure" "will affect industry and commerce. The speed will be increased accordingly The view has been corrected.

The way the Commission announces its views on economics and finance, business prospects and policies will change over time. In our case, the reports and recommendations of each FOMC meeting were not made public until two days after the next meeting.

In 1993, no announcements were made after the talks and no changes in the federal budget announced the target.

In February 1994, the day before the first austerity measures, President Greenspan testified before the Business Council that the FOMC would soon raise interest rates. However, the austerity measure or policy decision announced by Greenspan after the FOMC meeting was not necessary to the market.

From February 1994 to May 1999, the board issued a statement following the meeting only when it changed its financial objectives.

In May 1999, a month before the Fed set its federal investment targets, the FOMC issued a statement following a meeting on financial concerns and set tough rules. Since then, a letter is sent after each meeting.

In 2004, the FOMC received a revised wording, indicating that its economic outlook was improving and approaching its inflation target.

The Council sought to avoid a major overhaul of policy, especially in 1999 and 2004, by taking into account the potential impact of the financial crisis and by exercising judgment before acting.

Given the limited communication tools available in 1994, industry's response to the initial cutbacks was broad. According to some reports, the economy is on track to be stronger than expected, with concerns over rising finances, rising interest rates and rising volatility after the policy decision began.

In contrast, the financial sector was better prepared for growth in 1999 and 2004, in part due to better communications. After the June 1999 austerity, 10-year Treasury yields began to rise lower than in 1994. The subsequent move in the US Treasury was lower, which could affect the improvement in FOMC communications and decreasing the size and speed of the target increase. While the new term "fast paced" introduced in 2004 appears to have helped reduce long-term policy and cost uncertainty, changes in interest rates during the summer of 2003 also contributed to the sell-off. contracts.

No. 1 table

Table 2

February 1994

Prior to the start of fiscal policy on February 4, 1994, the real economy was still in the grip of a 1990-1991 recession and inflation was low, but most FOMC members believe that further inflation is needed, and some I think. austerity policy is the necessary conditions for financial management. Fiscal policy benefited: the public revenue target has remained at 3% since September 1992, core CPI inflation was around 3% on average and the government's reality: revenues are lower than the workforce. estimated at 2%. percentage of money. Financial markets that have developed are with falling interest rates and low volatility.

Although the momentum for economic expansion appeared to stabilize in July 1993, economic growth slowed more than expected by FOMC members, who lowered their estimate of GDP growth for 1993 (Table 1). ). However, they were also surprised by the rise in inflation during the first months of the year as the financial forecast for 1993 changed dramatically. President Greenspan said in his July legislative statement that "monetary policy" will be cautious about the potential for short-term sanctions. "By raising interest rates, raising long-term interest rates and affecting the balance sheet." At the August meeting, FOMC members felt that, including the injustices they committed during the May meeting, they had recognized the financial crisis. that the FOMC has not fallen behind (Table 3).

Table 3

The latest data for the fall of 1993 indicate that the economy is growing faster than expected and inflation is higher than expected. According to the report from the December meeting, FOMC members "generally expect the industry to enter small growth mode next quarter with a difference close to or slightly above its long-term capacity." The Fed's attempt to prop up some economies has reduced white space and reduced inflation. However, all of the minutes from the December 1993 meeting indicated that some FOMC members expected real GDP growth in 1994, and many referred to concerns about potential finances or very high interest rates. short term. Among FOMC members, demand is split between those who want to wait for more information before the public funds hike and those who need to hurry. Telephone nearby" (Table 3).

Long-term US interests have benefited from stronger economic data than the FOMC's Demand and Communication Authority issued in 1993 and early 1994. The 10-year US Treasury yield increased by 25 basis points in the fall of 1993, but it is still below this one. that was six months ago. One-year rates for the next one to nine years also fell to a base level in 1993, indicating that investors expect interest rates to stay low going forward. Prior to the announcement of the strict measures, market-based indicators did not point to an increase in uncertain interest rates. The unreliable effect of the short interest rate (measured with a 90% confidence interval in the next 6 months of 3-month LIBOR) is unreliable, and the negative effect of 10- The Future Year of the Treasury in the next 6 months is negligible.

Despite strong financial data released in the fall and winter, economic expectations for government revenues have not increased. In the six months leading up to the FOMC's decision to raise its target rate, Blue Chip's expectations for federal revenue next year have dipped slightly.The survey data shows that some stakeholders may have to estimate the company's growth and the impact of the financial impact.Growth forecasts remain above 2.5%, but the Blue Chip government's annual estimate has not risen in six months, leading to a slump. A similar forecast for next year, CPI inflation eased slightly before the end of the tightening, but remains above 3%. The S&P 500 was up 6.5% in the six months before the austerity measures and was up 24% from the pre-budget level. While the market expects interest rates to remain low going forward, some investors will see interest rates rise higher.In late 1993 and early 1994, net non-trade positions in Eurodollar futures became short, indicating that speculative investors were betting higher prices.

At the FOMC meeting in December, FOMC members discussed how best to inform the financial sector and the public that inflation is imminent. While discussing the need for a more concise resolution at the meeting, President Greenspan said the committee is currently uniting on goals of interest and policy as it intends to measure austerity in the early 1994. In response to the proposal that the President would use his words to indicate the consequences of a change in monetary policy, President Greenspan attempted to make the remarks during a joint business congress hearing on Monday before the FOMC meeting in February. Monetary policy should not be too lenient, "he said. Historical experience shows that" inflation is likely to occur later in the business cycle, "he said. the role of fiscal policy is to identify uncertainties in the timing of inflation ".."

When the FOMC met later in the week, most FOMC members agreed that the economic outlook for 1994 would be very strong and that growth would continue at a higher rate than it could. According to the personnel estimates for unemployment and output (Table 1), the use of capital is lower and will be cheaper. A rise is also unlikely to lead to a slowdown in finances, and there is a "significant risk" of inflation rising. These assumptions are reflected in the estimates presented in the financial report (Table 2).

In this context, most FOMC members have benefited from increased government funding programs. Some are calling for a 50 basis point rate hike, but most are calling for weaker regulatory oversight. Committee members expressed concern about the public service policy, as it was a long time since the Commission passed the last law in 1989. They decided to increase the targets to 25 principles and have to first asked the president to make a brief statement after the Gathering. A few weeks later, in the President's testimony on financial policy, the Commission's requirements were clarified.

Despite presidential testimony before the Economic Council, financial industry players were shocked by the announcement of the tough rules, which lead to higher interest rates and volatility.Nominal 10-year US Treasury results rose 14 points on the day of the announcement and then 200 points over the next nine months.

There are a few things that explain the rise in Treasury yields.The Federal Reserve's forecast (111 principles) for next year, affected by the pre-tightening of futures prices, leads to prices below the magnitude of the additional tightening (300 points).Therefore, a series of aggressive moves at the moment surprise the market. The acceleration of tight financial regulation was echoed by financial data released several months ago.Expectations of economic growth and rising inflation(Figures 7 and 8), which leads to greater efficiency. Uncertainty about the short-term course of interest rates has increased considerably, as evidenced by continued speculation about the future outlook for the Eurodollar. Uncertainty over long-term interest rates has also increased, pushing up 10-year government revenues.bonus timence.About half of the top 200 revenue gains over 10 years can be attributed to higher costs.Finally,The increase in long-term benefits can be amplified by features like Mortgage Protection (MBS).

Relative to interest rates, the stock market stabilized shortly after the first negative event, the entire recovery of the basics fell into a tight circle due to the market boom.. The stock price implied volatility index started to rise and stock market liquidity deteriorated slightly, but returned to normal levels after a few months. The range of companies is also narrow, especially for the lower prices. These trades were followed by trader decisions that the market saw better.Although the United States Treasury Department recorded significant revenues in 1994 and 1995, the recovery has been slower and more manageable compared to recent events.. It should be noted that at that time large assets of small loans and financial instruments such as income exchanges were not yet available.

June 1999

Concerns about the US economy began to grow in the fall of 1998. Despite the Asian financial crisis of last year, US demand for domestic demand was strong and the economy struggled. However, after the Russian failure in August and the collapse of the US Long Term Administration (LTCM) in September, the risk was offset by foreign currencies. . The financial crisis has shifted to the US financial system. In response to fears of a weakening US economy, the FOMC cut government spending by 75 points between September and November (graph 4). As a result, monetary policy has shifted from tight to weak. Investors often see the Fed's policies as a response to the financial crisis. As the crisis subsided, the stock market slowed down and liquidity returned to normal.

Table 4

By the end of 1998, the global financial crisis had gradually abated and the risks to the economy were considered equal. The real market remained strong in the first half of the year, thanks in part to a rise in the stock market following the simple rule (Figure 11).The economic outlook for 1999 was bright and the stock market was already tight, but with little sign of rising inflation.CPI inflation, the measure used by the FOMC in its report on the Monetary Fund, is around 1.5%. The CPI is expected to rise from 2% to 2.5% in 1999, as the impact of lower energy and oil prices fades and the market remains tight. In its February 1999 financial report, the FOMC forecast moderate economic growth and stable unemployment. Between their December 1998 and January 1999 meetings, FOMC members generally agreed that due to the continued tightening of the economy, prices and inflation will start to rise, and some have argued that the rapid growth of the currency would also undermine monetary policy. cowardly. indicates that there can be no stress. However, if the market grows at a moderate pace on demand, members should not have a real impact on inflation.

By the end of 1998, the S&P 500 had recovered all of its lost ground and was up more than 10% in the six months before austerity. Market share is also falling, but the distribution of capital levels and earnings is still slightly above their previous lows. The net non-commercial position in forward interest rates is close to average, indicating that speculative investors believe that current interest rates are affected by political expectations. However, it was not until early 1999 that investors began to expect the FOMC to phase out its support measures. As a result, in the six months prior to the policy tightening, government revenue estimates for the following year were revised and, both in the short and long term, revenue duration also increased.

At the FOMC meeting in spring 1999, FOMC members discussed how accelerating commodity production will help curb product growth and unemployment, estimated to be 13% lower than estimated. official NAIRU. inflation. FOMC members also kept their average wages growing, driven by lower inflation. However, in April 1999, the CPI generally rose 0.4%, which, together with higher oil and other commodities, increased financial sector volatility.

At the FOMC meeting in May, many FOMC members said their role in fiscal policy had become "uncomfortable." Using the large PCE budget, the key investment of 3.5% is not significant compared to 1994 or 2004 (Table 1). Fed Chairman Greenspan said he had no plans to raise rates, but he agreed with many others on the issue and announced the first exchange rate soon after. decision. The post-meeting statement sent a message that the board intends to avoid further inflation (Table 4). Conclusions: “In the context of the tightening of the internal market and the still strong demand for the growth of the manufacturing industry, the Commission declared that the financial situation was again reducing inflation. The announcement further bolsters investors' confidence in the austerity measures, with some indicating that the austerity measures will be worse than expected.

When the meeting, the most recent information of business is strong for a variety of business rules. "The new data is very nervous, but the most powerful and increase in the risk of the fomc funds pointed to salary between, and it rises to inspect some expectations. However, wide salary is still softened. The fomc is about all Quickly requested and not deciding whether a complete management can be maintained, and the minute supports the right to "tenderness as well as the steps" of fate of increase rates. This group discussed the first person's fee (or 75 use of funding in 1998 and to prevent additional money decided that "Eagle" (that is related to "Eagle" (related to a great economy UV 1998) is not necessary. "One more, some members would like to manage any concerns such as this is about risky concern. However, most people like to correct the rules. I Think it would be unacceptable to take the process of work-based duties as a new account of the team and do not have to be added strengthen the law management, and increase in inflation of control.

The Fed's policy of raising the government revenue target is a strong expectation from investors, in part because of the tough restrictions that were announced in May. As a result, the terms of the 10-year Treasury contract remain virtually unchanged since the announcement. However, market data unexpectedly increased in the early 2000s and industry players revised their growth forecasts over time. As a result, Treasury yields and forward rates continued to rise.Overall, the long-term increase over the 1999-2000 period is lower than in 1994, possibly due to smaller size and slower performance and better FOMC statement.

Commodity prices rose after the FOMC announced rate hikes in June and generally rose during the tightening period. With the exception of the short term in spring 2000, stock prices stabilized. Market share remained virtually unchanged in 1999, but began to increase in the early 2000s due to growing concerns about the advantages of the information technology sector. Fiscal consolidation did not have a major impact at the onset of the crisis and only had a limited impact as the FOMC continued to tighten in the early 2000s. Do not negotiate future interest rates remains neutral or has changed little throughout the tight cycle.

June 2004

In late spring 2003, the FOMC saw the first signs that the performance of the economy was stable, but with lower inflation and lower expectations, the Board of Directors decided at its June 2003 meeting to reduce public revenue by 25 principles. 1% (Table 5). The move to liquidation of the contract, because the participating companies consider that the reduction is less than expected, which makes it more difficult to apply the law inconsistently. Technological processes, such as MBS convexity hedging, have also been shown to increase interest rates.

By the fall of 2003, the unemployment rate had started to decline, but it was still a percentage point higher than the NAIRU estimated by its employees. However, with the PCE's fiscal key falling to 1.25%, the FOMC sees "the risk of inflation falling to unbelievable levels" as a "major concern for the future". In response to his concerns, the board announced after its August meeting that “simple policies can be maintained for a long time” (Table 5). The Board reiterated the future direction of its three additional meetings this year. By December, further "inflation reduction" risks had been reduced, and the board agreed to modify its post-meeting announcement to reflect the volatility of financial risk. See something almost like a climb (potential). "The Council also added the phrase" against the background of low inflation and low spending "and that the rules will remain" for a foreseeable period, "making future directions clear, information depends on what I have do.

Table 5

At the January 2004 meeting, interest rates fell due to another unemployment report. However, the yield curve remains steep and short-term yields are minimal. Unsurprisingly, market expectations for an extended restriction policy until October 2004 were low due to the suggestion that the law could easily withstand a "critical period". However, some FOMC members do not like the yet-to-be-decided view on the contract, or suggest that the interest rate cut will last longer. Greenspan and Cohn discussed whether the Fed would use the new language in a statement that the group believes "simple rules can be tolerated," saying the new terms are subject to change and the committee will respond to them. in business development. "The job can change enough to wait about a year (interest rate) after a few months," the official said.

In March 2004, the performance report was stronger than expected, the announcement of other positive economic data, and the expected increase in profits led to a higher rise in the spring. “The threat of deflation is no longer a problem,” the Fed Chairman told Congress.

A key question on the minds of FOMC members in the first half of 2004 was how to interpret growth in energy production and whether rising commodity prices would come to describe a weak function. Although most FOMC members generally (but not specifically) agree that rising commodity prices are often affected by technological changes (potential increase in production), there is little doubt as to when and to the frequency of cyclical slowdowns. Indicate the uncertainty. A slowdown in manufacturing can create more jobs, but it can also have a significant impact on inflation.

At the same time, some FOMC members began to worry that over time the economic downturn could encourage speculation, leading to financial insecurity. In January 2004, President Greenspan said that while the "bubble" was not yet in place, real estate prices had changed dramatically. Questions about the potential of the "bubble house" and the potential impact of retrieving family records were also raised during the FOMC roundtable in early 2004. Another question that has been asked is: is Is the narrow range of firms reduced risk averse or is it the perception of profit seeking behavior? What about the balance sheet between households and businesses when interest rates rise? What are the risks for GSE that could have a financial impact? And how will Basel II affect the structure and benefits of the industry?

until May,Strong performance data, the magnitude of rising CPI inflation and some signs of increasing payments have led to changes in policy requirements.The unemployment rate was 5.75%, which is even higher than the NAIRU estimate of 5%. However, some FOMC members said the consensus on the economy had "improved" since the March meeting, with the majority seeing "reduced investment gains" while most seeing "less" more "less. silver". . “Following in the industry's footsteps and recommendations from President Greenspan and other members, industry participants have raised their expectations for the tight first budget since, like last year through the third quarter, and are expected to increase rates until the end of 2005. 3.5%.

In the Education Policy Policy Faith, Fomc Members believe "Great Priesthood Groups' President:" We have completed the loose cycle that can be Volunteered with the efforts of unnecessary items in the middle-2000s in between-2000. " I want to give this unit. This group will want to strengthen as soon as possible, but it will be stated in step by step. Some members have told to avoid the financial business to avoid the financial business that groups can improve the crowd. 1994-1995. Circles are radical. Some people have found that gain is still low in the right, and the resources are also available and support policies. Use the word "fast speed", it seems to meet the changes (especially that they want to be a larger behavior when needed. However, the Display interest and do not want to avoid all the instructions on earlier.

Long-term yields continued to rise after the leadership changes and the economy was already starting to recover before expectations were boosted. According to data on non-profit futures positions, speculative investors had already begun to adjust their positions in the face of rising US earnings before June 30, 2004, when they announced an increase in their target. government budget. This position was revoked almost immediately after the announcement. By the June meeting, the market expects a 0.25% rise in points (up to 1.25%) at the meeting, along with further increases in fed funds.

At its June meeting, the committee noted new evidence that the energy industry has gained strength and efficiency, and that its performance appears to be self-sufficient.The discussion focused specifically on the indication that inflation has risen sharply from its 2003 low and is likely to rise further. Topics include rising energy and materials prices that seem to be heading towards key consumption, weak financials, key earnings per share, and evidence of recent financial outlook.Although some viewed the rise in inflation as temporary and pointed to the long-term financial outlook as positive, others argued that policy reforms should begin before inflation rises in the financial outlook. long term and trust is key.

In preparing the market forecasts for the next financial statements, FOMC members modified the main PCE inflation forecasts to better reflect the underlying inflationary pressures (Table 2). They expect that with the right regulations, unemployment will gradually decline to 5% or slightly above 5% by the end of 2005, and PCE's core financial data will remain at its highest level. of around 1.75% in the first half of 2004.

Although a majority of FOMC members agreed that the board should change its policy to be neutral in the current period, few said they would like to remove the explanation of future policy in the interview. Both members discussed retaining the phrase "goodwill," which could mean the constant 25bp of austerity at every meeting and could derail late business when inflation rises due.

However, for most people, regarding the translation of business data and its impact on the economy and inflation, this sentence ("However, the Commission The watchdog will respond to changes in the real estate market to fulfill its obligations to maintain stable price"). It provides room for adjustment in the way interest rates are regulated. Greenspan describes the watchdog policy in its financial information report: although we should revise our policy at a lower level to ensure that prices stabilize in line with the trend. improving the economy, our economy seems to be better positioned to trade higher interest rates. "In an emergency, the uncertainty and risk surrounding the business environment will be greater. The two situations cannot determine the individual's financial situation."

The vaccine market for the June 2004 FOMC decision was higher than it was in 1994, in part due to a change in leadership in May. of the austerity law. The yield on the 10-year US Treasury certainly fell 8 principles on the first day of the trek and continued to decline for the following months. Long-term shipping has seen a decline.It is unusual for the long term and the long term to fall in times of crisis, which Greenspan calls "unknown." A drop in interest rates usually indicates a lower rate.One possible explanation is that FOMC communication over time (the new definition of “fast velocity”) reduces uncertainty in short-term and long-term interest rates. However, other important factors may also be playing a role, including strong foreign demand for US Treasuries and "global savings", which have fueled demand more on long-term assets held by insurance policies. pension and life insurance.

The stock market began to decline but rebounded rapidly and continued throughout 2004 when the company's stock market continued to decline, particularly in terms of profit margins, after clearance was declared. Access to the Monetary Fund failed miserably in the spring of 2014, then improved after the Fed announced tougher policies and remained in good shape for the most part in a tight circle.