Regional President Speech

Statement o Frank E. Morris, P:r.esident Federal Reserve Bank of Boston Before the American Bankers Assoc·ation Bank Investments Conference Americana Hot.el New York, New York February 12, 1976 In searchi~g around for a topic, ·twas s~9gested to me that you m~ght be interested in a description of the typical process by which monetary policy decisions are reached by the Federal Open Market Committeec Next Tuesday, February 17, nineteen men will sit down at a very large table in the Board o Governor's building in Washi~gton to formulate monetary olicy or the next four weeks--seven members of the Board of Governors plus twelve Federal Reserve Bank president. Only five of the Reserve Bank presidents will have a vote, but the other seven voteless presidents have an opportunity to participate in the debate and to attempt to sway the policy decision by the power of their a~guments. Alo~g with these nineteen are a similar number of staff economists from the Board and from the Reserve Banks. Two questions m~ght arise at the outset~ With so many people involved, how is it possible to maintain security? More fundamentally, people who have had experience with decision-making by large committees may NOnder how is it possible to arrive at a decision? Despite the number of people involved in this . great age of the leak, we have never, to my knowledge, in the 7-1/2 years in which I have attended FOMC meetings, had a breach of security. Fortune magazine published -2- an article a while ago dealing with monetary policy in 1972 which claimed to be based on leaks, but the event depicted in that article never took place, This was clearly a case of fabrication- not of r.eaks, so my statement stands. How does a committee of twelve arrive reasonably expeditiously at a decision on a problem as complex as monetary policy? Partly it is a product o.- good staff work The bac~ground papers prepared for the Committee are extremely comprehensive and well o~ganized. The routine reports prepared for the January 1976 FOMC Meeting totalled 233 p~ges. The Committee members have a tradition of do4tg their homework. As a consequence, _very little time i.s spent at the mae t.Lnq in d Laou s a.i.nq f ac t s , Knowle~ge of the facts: •·s assumed and discussion is pretty much restricted to their interpretation--a great time-saver Partly it is due to the presence of a stro~g Chairman who can assure that the meeting does not b~g down in trivia I have served under two strong chairmen--Bil~ Martin and Arthur Burns. Both have been careful to permit everyone a chance to speak his mind, but both were also intolerant of monologues or dialogues which wasted the time of the Committee. -3- Finally it is due to the unspoken tradition of the Committee that fine shadings of policy differences must be compromised in order that a concensus may emergec t is only where policy differences go beyond fine shadings that a Committee member is expected to dissent. The fact that the Committee has a history o frequent dissent ~s a s~gn of healthe On the Thursday preced4ig an FOMC meeti~g, .each participant receives the Red Book, so named because of the color of the cover. The Red Book, which runs aoout 35 pages, is produced by the Reserve Banks. I seeks to develop a qualitative feel for what is. going on in the economy at the moment--to supplement the published economic statistics which tell us what happened in the economy one or two months ~go. For next week's FOMC meeti~g, for examplef we will have complete data for December, partial data for January and very little information for February, even tho~gh the month is more than half over. The Red Book which is based on surveys of Federal Reserve directors and o her information sources by each Reserve Bank is an attempt, and a very useful one, to minimize the problem of data lag. On Fridays preceding the meeting the second key report arrives--the Green Book which runs around 75 pages. It presents the latest projections on the U.S. economy by the Board Staff, an analysis of the U.S. balance of payments and brief accounts of developments in the major fore~gn countries. -4- On the Mondays prior to the meeting, the Committee receives the Blue Book {about 30 pages ·n leng h) which presents a sophisticated analysis of financial develop ments during the prior four weeks and a set of monetary policy options for the period ahead. Eacho the options presents rates of. growth for the monetary ~ggregates, the changes in the various .-eserve measures expected to be required to suppo t that growth in the aggr~gates, and the level of the Federal funds rate expected to be associated with that_ growth in reservesc It also describes how each short-run policy o tion relates to the lo~ger-run objectives for the monetary a9gregates which the Committee has established. Before leavi~g for Washington each Reserve Bank President is briefed by his own research staff with respect to their view of the economy, where it differs from that of the Board staff, developments in the region which may have relevance for national policy, and their view of the optimum monetary policy course. -s- Just before the meeting, Committee members receive a supplement to the Green Book, the latest reports of the managers of the Open Market Accountc Domes ic and Foreign, a report on the latest meeting of central bankers at Basle, and possibly otherso Having absorbed and evalua ed this considerable array of material, the Committee member is Fesumably ready for the meeti~g. The meeti~g is typically divided into three parts: international fi.nanc~al operations, _the state ·of the domestic economy and domestic monetary policy for the period ahead. A ourth part is added in those months in which we must re-evaluate our lo~ger-ra~ge objectives for the ~ggr~gates. The opend.nq secti.on of the meeting deali!lg with international finance may be brief when foreign exchange markets are tranquil, but extensive when they are turbulent. Foreign exchange operations of the Federal Reserve during the prior fo-ur weeks are discussed, both those initiated by us and drawings on Federal Reserve swap lines by foreign central banks. The manager of the Open Market Account then seeks instruction from the Committee to guide him in his operations during the period ahead. In the event -6- of major, unanticipated problems arising between meetings the manager will turn for guidance to a Subcommittee of the FOMC chaired by Mr Burns. The next section of the meeting is devoted to a usually le~gthy discussion of the state of the U.S. economy. The common point of depar re s he Board staff projection and the discussion usually begins •wj th an explanation of the reasons why the projection has been revised from the one presented four weeks earlier.

Frank E. Morris (1976, February 11). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19760212_frank_e_morris

@misc{wtfs_regional_speeche_19760212_frank_e_morris,
  author = {Frank E. Morris},
  title = {Regional President Speech},
  year = {1976},
  month = {Feb},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19760212_frank_e_morris},
  note = {Retrieved via When the Fed Speaks corpus}
}