Prior discussion:
speaker: MS. RIVLIN.
text: [Laughter] 
speaker: MR. JORDAN.
text: Whatever the Treasury's reasons might be for wanting to increase the outstanding stock of index-linked securities, I would be troubled if we were, in effect, to undertake to cancel some of those securities by monetizing them. As I understand it, a problem with that market has been its illiquidity; it is not a market that has developed breadth and depth, and all those things. For us to buy up some of these securities and remove them from the market when it is still in its early stages of development would be troubling, so I think we should proceed very slowly and carefully before engaging in this activity. And then there's the notion you alluded to, regarding the public policy perception of the central bank buying inflation protection. 

MR. FISHER. "And as you and I were discussing before the meeting, it will only get worse next year in the Y2K environment."

Full utterance: There is something of a "Catch-22" about the liquidity issue. I'm particularly sensitive to that issue because, while Wright Patman was free to have his views, one of the jobs the Committee has assigned to me is to worry about what I would do if I had to sell large amounts of securities within a short period of time. What if I have to make changes to the System's balance sheet along the lines that we talked about a couple of years ago? In that context, I feel I need to be as diversified as possible among the full range of assets that I am allowed to hold, so that I will have maximum flexibility in the event that I have to shrink the size of the SOMA portfolio to a major extent. We currently hold about 30 percent of the Treasury bills outstanding, about 10 percent of the coupon issues outstanding, and 5 percent of the index-linked securities outstanding. Now, the share of Treasury bills in SOMA has been declining recently because I can not in good conscience, and the Treasury is rather uncomfortable as well, continue buying such large amounts of Treasury bills as to dry up the supply in the public market. So, I am constrained on the bill side. On the coupon side, our operations currently are geared toward trying to smooth out our holdings so we will have roughly a 10 percent share across the coupon spectrum. Once we have reached a smooth distribution across all maturities, then we will have to step up our purchases of coupon securities. In my discussions with the dealers, I tell them that they are responsible for fostering a deep, liquid market; and, in turn, they suggest that I also have some responsibility in that regard. Now, you may feel that this is a camel's nose coming into the tent but if the System, having purchased Treasury indexed securities at auction, were never to purchase them in outright operations, the market would see that as a rather big black eye for those securities. But I'm not sure I want to be providing such a negative signal to the market about a type of security that the U.S. Treasury is offering. Consistent with the spirit of your concern, President Jordan, I want to proceed very carefully. I certainly have no intention of holding a larger share of the outstanding indexed debt than I do of the regular coupon debt, and I would move in that direction very gradually and episodically. However, I have a problem in terms of the asset classes that I hold, and I feel some constraint on where I should go. And as you and I were discussing before the meeting, it will only get worse next year in the Y2K environment. So I'm feeling somewhat hemmed in, and if people have alternative solutions for me, I am all ears.

Opinion: yes
About monetary policy: no