America’s central bankers entered 2010 with a better economic environment than they faced a year earlier. But the year proved to be a struggle, leading the Federal Reserve to launch its second round of bond-buying by the end of the year.
Officials still found a few opportunities to cut the tension at formal meetings of the Federal Open Market Committee. The 2010 transcripts, released Friday, noted 222 moments of laughter across 10 meetings and conference calls — down from 303 in 2009. (They’re marked by a “[Laughter]” tag in the transcripts.) As we do each year, we’ve collected some of the best and worst cracks here. Most were spur-of-the-moment remarks; a few were prepared jokes.
(A reminder: These central bankers know they’re not comedians. The 1,605 pages of transcripts show policy makers diving deep into details about the economy and Fed policy. Read our comprehensive coverage here on Real Time Economics to understand those serious discussions.)
Fed staffer Brian Sack, briefing FOMC members, reminds policy makers what they think of their club.
MR. SACK. … To help gauge market expectations, we conducted an extensive survey that asked respondents about how they expect the FOMC to exit from its current policy stance. We expanded the survey beyond the economists who are typically included in our dealer survey, because many of you at the last meeting indicated that you don’t actually trust economists. [Laughter] This may be a good time to remind you that most of you are economists.
Fed governor Kevin Warsh remarks about near-zero interest rates alongside bond-buying:
MR. WARSH. Thank you, Mr. Chairman. I am going to try to answer two questions in my discussion today. One is a familiar one: What is the most significant development since we last met? And the second is, Who knew free money would be so popular? [Laughter]
Fed Chairman Ben Bernanke, who hasn’t even come to QE2 yet, already feels some deja vu about economic disappointments:
Let me add just a few words. I think the discussion today was exceptionally comprehensive. It’s actually difficult to say something new because in many ways the outlook looks quite the same as it has for some months now. I think it’s appropriate that we are almost at Groundhog Day, with its repetition. [Laughter] When I was making my notes for these remarks, I was looking at the financial indicators, and I noted that the stock prices and the long-term bond yields were exactly what they were at the last FOMC meeting.
Kevin Warsh summons his inner Donald Rumsfeld around the FOMC table:
MR. WARSH. Thank you, Mr. Chairman. Though to much derision, I recall someone in Washington saying that you go to war with the army you’ve got, not the army you want. Maybe the same is true of statements. [Laughter] So that should maybe govern a bit of our thinking.
Twitter, gaining broader popularity in early 2010, inspires top Fed economist David Stockton:
MR. STOCKTON. Thank you, Mr. Chairman. Given the shortness of time we that have available this morning, I considered moving FOMC proceedings to a whole new level of efficiency by Twittering my briefing [laughter], with a Tweet something along the lines of “Recovery remains on track, though headwinds continue to be evident.” But, proving that we are still in Washington, I was informed by the FOMC Secretariat that any proposals for improvements in efficiency require a detailed study, formal reports, and approval by a subcommittee of FOMC members, preferably chaired by Governor Kohn [laughter]. Appropriately chastened, I will try to remain brief within the confines of the traditional format.
Chairman Bernanke implored them to be brief for a one-day meeting, inspiring Atlanta Fed President Dennis Lockhart:
MR. LOCKHART. Thank you, Mr. Chairman. This is, of course, our first one-day meeting in a long time, and the premium is on brevity. I was reminded of this on Sunday when I was driving to the bank to do my final preparations, listening to Garrison Keillor’s “Prairie Home Companion.” He was reciting pearls of cowboy wisdom—I would think my western colleagues would know this—including “Never pass up an opportunity to remain silent.” [Laughter]
MR. LACKER. Is that your only point?
MR. LOCKHART. Actually, I do have something to say…
After he was done, Mr. Bernanke was ready with his reply, so was Dallas Fed President Richard Fisher.
CHAIRMAN BERNANKE. Thank you. There’s a South Carolina version of your aphorism, which is, “If you should ever have an opportunity to keep your mouth shut, be sure to take advantage of it.” [Laughter]
MR. FISHER. Well, I was going to say that the Texas version of the aphorism is, “Never be silent.” [Laughter] But I will try to be brief.
Kevin Warsh had his own opportunity later.
MR. WARSH. Thank you, Mr. Chairman. I’m not from the south, and those from the south had witty aphorisms to begin. I’m a Yankee, and I went to a public school in upstate New York, and it was a rambunctious crowd at school. We were all bussed in from smaller towns to go there. And so I can only begin by saying what the principal would say on the loudspeaker. After the Pledge of Allegiance he would tell us, “Don’t just say something—sit there.” [Laughter] So let me try to accomplish that.
Discussing policy options brings us to our first Titanic reference of the year, courtesy of St. Louis Fed President James Bullard:
MR. BULLARD. … There’s nothing optimal, in my mind, about the rigid programs that lay out a particular path as in, say, option 1 or option 5. It’s true that you would create certainty in markets, but that’s sort of creating certainty at the expense of adopting a suboptimal policy. You could call this “the Titanic policy.” They set the optimal path to New York City, but then did not adjust—[laughter]—to the shocks as they occurred.
The economic overview brings us back to Fed Funnyman David Stockton:
CHAIRMAN BERNANKE. Terrific. Anything else? [No response.] All right, we can now turn to the second agenda item, the economic situation, and turn to Dave Stockton and Nathan Sheets to give us the overview.
MR. STOCKTON. Those of you who monitor postings on SDS probably noticed that soon after we published the Greenbook last week, I was forced to issue a corrected version. Inadvertently, some of the dates in the headers had not been changed from the March publication date. Normally, I wouldn’t submit myself to that ritual humiliation for something as seemingly trivial as header dates. But I was concerned that some of you may have thought we were simply resubmitting the March Greenbook [laughter] so that we could do nothing this round. Given how little our forecast has changed since last summer, I’ll admit that this has become an increasing temptation. But being good government bureaucrats, I can assure you that we spent considerable time, energy, and resources to do nothing [laughter].
Minneapolis Fed President Narayana Kocherlakota weighs the Fed’s arsenal with Congress unwilling to help much more:
MR. KOCHERLAKOTA. A much more difficult problem, is the situation where deflationary expectations start to become hardened—a deflationary trap— as I discussed in the economic go-around. My own assessment of the literature and my own thinking about this lead me to believe that we, the monetary policymakers, have very limited tools at our disposal in this situation. I think it would be great to have staff research on this, because it’s a very challenging problem. Without a lot of monetary policy tools at our disposal, we would have to hope for a sufficient degree of fiscal irresponsibility from the Congress [laughter]. The Japanese have tried the fiscal approach, and it has not been successful for them. So I think it would be a very challenging problem if we got to that stage. Thank you, Mr. Chairman.
Remember when everyone was obsessed with the World Cup? The Fed noticed:
MR. LOCKHART. I favor the approval of the coupon swaps and the inclusion of it in the directive as proposed. And, finally, I’d propose that we delay the statement by half an hour and cite the World Cup as our excuse. I think this will add to the prestige of the Fed [laughter] and will, on a global basis, add to the credibility of our institution and have very positive effects on the efficacy of monetary policy going forward. Let the transcript read that I’m kidding. Thank you, Mr. Chairman.
CHAIRMAN BERNANKE. Thank you for that clarification.
The Fed discusses a peanut trend, kicked off by Richmond Fed President Jeffrey Lacker:
MR. LACKER. … Here’s a sign of the times. The CEO of one of the largest peanut companies in the United States reports that sales of cocktail peanuts are down, but peanut butter is up. [Laughter] Overall, then, I’d characterize the anecdotal reports from our District as still mixed.
Later, Mr. Bernanke wants to know more about this new economic gauge:
CHAIRMAN BERNANKE. Could I inquire further about the peanut indicator? [Laughter] What was the implication of the cocktail versus the—
MR. LACKER. Well, cocktail peanuts are sort of a high-end good, you know, and they’ve fallen in the recession.
CHAIRMAN BERNANKE. I see.
MR. LACKER. But people are eating more peanut butter.
MR. WARSH. I took that just to mean there were a lot of mixed nuts hanging around you. [Laughter]
Somehow it comes up again later, but with no laughter:
CHAIRMAN BERNANKE. Thank you. President Lockhart.
MR. LOCKHART. Thank you, Mr. Chairman. First, let me thank President Lacker for educating us on the peanut market. I have often maintained that if there’s such a thing as reincarnation, I’d like to be reincarnated as a Smithfield pig—you have a very short life, but you get to eat peanuts the entire time.
Secrets of the Temple from Mr. Kocherlakota takes us into where the Fed’s power really ends:
MR. KOCHERLAKOTA. … My tentative conclusion is that the labor market is beset by an unusually severe form of mismatch. Firms have jobs but can’t find appropriate workers. The workers want to work but can’t find appropriate jobs. This mismatch may not be amenable to monetary policy actions. The Fed can do many things, but it cannot readily transform a construction worker into a nurse. [Laughter]
Chairman Bernanke gets to put even more of his schoolwork to use:
CHAIRMAN BERNANKE. … Let me quickly address a couple of other themes that have been raised today. First, let’s talk a little bit about uncertainty and its effect on investment and hiring. As President Yellen mentioned, this was, in fact, in my Ph.D. dissertation. I’m glad to see that, after 31 years, it’s finally getting a little attention. [Laughter]
As Fed governor Donald Kohn’s approaches his Fed departure, Mr. Warsh invokes him while discussing a serious policy point:
MR. WARSH. Thank you, Mr. Chairman. Governor Kohn knows the great affection that I have towards him, and he has done an excellent job today of making it harder for me to miss him when he’s gone. [Laughter]
MR. KOHN. I’ll keep trying.
MR. WARSH. He rightly stated that the burden on the Federal Reserve is to “take actions because we can.” I must say that I read into his comments the view, which is a reasonable one, that there is dignity in failure—“we should try because we can.”
MR. KOHN. Better to have loved and lost than never to have loved at all. [Laughter]
MR. WARSH. I must say, I honestly see no such dignity. We cannot afford to fail. We are the grownups in town. We are the last folks, rightly or wrongly, fairly or unfairly, in a global economy that demands institutional credibility, and we should be thinking long about the decisions that we make.
Fed governor Elizabeth Duke sums up a Fed dilemma:
MS. DUKE. … So my reservation is not a concern about keeping our powder dry, but a concern that our remaining ammunition is much less effective than we can claim when its use is only in the potential. In thinking about this, I’m reminded of the old admonition that I heed too infrequently which is, “it is better to be silent and be thought stupid than to speak and remove all doubt.” [Laughter]
Fed officials, reduced in number, continue their wait for widely heralded economist Peter Diamond to finally get approved by the Senate Banking Committee:
CHAIRMAN BERNANKE. The five at the table are stretching out pretty well here. We’re thinking of leasing out a few offices. [Laughter] I think there is potentially some good news, in that we have some prospect of getting two people appointed before the Congress goes back on break. Peter Diamond will have to have another hearing—he needs to convince Senator Shelby that he’s a qualified economist. [Laughter]
The Fed’s top international economist, Nathan Sheets, summed up the state of Greece by noting its “apparent slide from advanced economy to emerging market status” during its crisis:
CHAIRMAN BERNANKE. If a country goes from advanced status to emerging market, is that a submerging market? [Laughter]
MR. SHEETS. I know that over the years Japan has been referred to in those terms, and maybe Greece is raising them a notch.
Another try at innovation in Fed communications:
MR. LACKER. … I’ve sort of expressed my preference about the proposed statements. I do like the idea of press conferences—I think you’d be great at it, Mr. Chairman. I do not think we’re ready at this time for other social media, like Twitter or Facebook, for communicating our monetary policy, but maybe down the road we’d want to consider it. Thank you very much.
CHAIRMAN BERNANKE. “Rates up”—under 140 characters. [Laughter]
Back to Peter Diamond, who has since won a Nobel Prize. Spoiler: He never makes it onto the Fed.
CHAIRMAN BERNANKE. … We have no new information on the nomination of Peter Diamond to be a member of the Board of Governors. As you’ll recall, his qualifications to serve had been questioned. He has since taken steps to remedy that. [Laughter] It’s good work, but whether it will be sufficient I don’t know. Still, we’re hopeful that he will be reviewed and confirmed. I have spoken to him, and he remains as committed to joining the Board as he was prior to the announcement of his Nobel Prize.
A reminder that Janet Yellen, as vice chairman of the Fed Board, is not vice chairman of the FOMC. That’s held by the New York Fed president.
MR. EVANS. Could I ask a question? Vice Chairman Yellen—
CHAIRMAN BERNANKE. It’s Governor Yellen.
MR. EVANS. Governor Yellen. Oh, in this Committee—
CHAIRMAN BERNANKE. “Your Highness” will be fine. [Laughter]
MS. YELLEN. Good suggestion.
Back to the resident funnyman David Stockton, this time with a GPS analogy:
MR. STOCKTON. … Indeed, as I recently reviewed the staff’s forecast performance over the past year, I began to feel considerable sympathy for the lady inside the GPS unit of my car who seems to be constantly barking out that she is “recalculating” as my driving disappoints her expectations [laughter]. We’ve had to do our share of “recalculating” this year in response to an economy and to exogenous events that often seemed to deviate from the path that we had anticipated. Somehow, I suspect that, as Santa reviews our performance, he won’t show me as much sympathy as I have come to feel for my GPS lady. If that is the case, I’ll just have to make myself content in the knowledge that, given the steep rise in commodity prices over the past year, the lump of coal that he is likely to leave in my stocking will be considerably more generous than anything I will be receiving from the Federal Reserve [laughter].
The interim president of the San Francisco Fed, John Moore, also has an extended analogy:
MR. MOORE. … The fiscal situation reminds me of a new piece of apparel that a national clothing retailer told us about recently. Over the past few years, a huge market has developed for a product called Spanx—there’s an “x” at the end, not a “k-s”—which are body shaping undergarments for women. This year the product line has been expanded to include men’s Spanx, a tight-fitting undershirt that can slim down almost any male figure [laughter]—present company excepted, I suspect. Where am I going with this anecdote? Well, as I observe reaction to the Deficit Commission’s proposal, I can’t help but feel that our country will resort to fiscal Spanx rather than a good, old-fashioned diet in addressing our long-term fiscal deficit.
How could you have a Fed debate in 2010 without a Sarah Palin reference?
MR. KOCHERLAKOTA. Thank you, Mr. Chairman. I am in favor of alternative B, but I would like to expand on that to talk about what we should be doing in the next few months. I’m going to talk first about how we should structure further accommodation or tightening, and then offer some tentative thoughts about appropriate conditionality. When thinking about further easing, I find it useful to return to the three tools that you, Mr. Chairman, outlined last August in Jackson Hole: the LSAPs, forward guidance, and the IOER. I would recommend against doing another LSAP for a couple of reasons. As I suggested in October, I think that we have relatively little control over its effects. Its ultimate impact depends on the accumulated stock of purchases that markets expect us to undertake, and that dependence combined with its relative novelty leaves us at the mercy of outside influences. Indeed, even tweets from former governors of Alaska can end up affecting those expectations. [Laughter]
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