##omc members resume their discussion, focusing now on their policy preferences. in the twenty fomc meetings in which i have participated, chairman greenspan's participation in the discussion until this point has been limited. i suspect that this fact might surprise most fomc observers as chairman greenspan, like virtually all of his predecessors, is considered almost the personification of monetary policy. yet before the chairman offers his first substantive comments at these meetings, eighteen other participants, representing literally hundreds of hours of study and analysis, have provided their input. considering the complexity of the u. s. economy and the implications of monetary policy on the world economy, the issue facing each fomc member is deceptively simple. we establish a target interest rate for what is known as federal funds - or, more commonly, fed funds. fed funds constitute an interbank arrangement that allows banks with surplus balances at their federal reserve bank to loan those funds overnight to banks that temporarily need to borrow to meet their balance requirements. an individual bank's balances on their federal reserve accounts can vary significantly depending on the dollar amount of the checks cleared that day, the volume and sequence of wire transfers in and out of the bank's account, and changes in investment or lending at the bank. in the aggregate, fed funds are an important indicator of liquidity in the banking system and, by implication, the money supply. all fed funds loans are for a single day, and the interest rate is reestablished daily. fed funds rates thus are an excellent barometer of both the price of money and the changes in the money supply. the federal reserve act requires that monetary policy promote maximum employment, stable prices and moderate long - term interest rates. happily, in this instance, congressional intent is also sound monetary policy. former federal reserve chairman paul volcker once said, “ no central bank can - or should, in my judgment - conduct policies for long that are out of keeping with basic, continuing objectives of the political system. ” 2 when i was a young banker in the 1960s, many of my loan customer's decisions were affected at least in part by memories of the great depression. while depression fears were widespread, the ravages of high inflation elsewhere, such as post - world war i europe, had not been experienced here. in fact, many people had a positive view of inflation as leading rising property values and were not convinced that inflation was inherently bad. public policy decisions with inflationary implications -

– are engaged in a similar process. i can assure you that the federal reserve has not spared any effort in preparing its internal systems and the financial services and products we provide to financial institutions for the year 2000. we have completed y2k preparations for our services and products, and in june 1998 we opened a testing facility for our customers. to date, more than 9, 000 financial institutions have tested the services they use with the federal reserve. these represent all of our major customers in terms of transaction volume and dollar amount of the items processed through the federal reserve. we also have tested the automated payment services we provide to federal agencies such as the social security administration to ensure that banks can receive government payments and then post the deposits to their customers ’ accounts. the new york clearing house, in particular, and other private commercial entities that process wholesale and retail payments have followed testing programs similar to ours. no one can say with certainty that there won ’ t be any problems or disruptions during the century rollover. however, based upon the information i have shared with you, we expect that any disruptions or glitches in the united states that do occur will be minor and of limited duration. moreover, because there is an expectation that something somewhere will go wrong, the financial sector – from the regulators to the markets and payment systems to the smallest introducing broker or bank branch – is preparing contingency plans. i would also like to emphasize that a percentage of automated systems are down every day without causing serious disruptions to commercial transactions and markets. for example, 1 – 2 % of atm machines in the united states are down at any given moment – some simply because they are out of paper – yet consumers know to go down the block to another machine or into the bank branch or local supermarket to obtain the cash they need. even more serious disruptions periodically occur : the new york stock exchange and, only last month, the chicago board of trade computers have experienced glitches that caused their markets to close temporarily without causing serious disruption to the us financial markets. in all of these situations, americans react with typical aplomb : they prioritize and address the most serious safety and well - being issues first, and they usually are willing to tolerate some inconveniences and delays related to less - critical needs. increase in readiness information and readiness of other domestic sectors as i said earlier, my assessment of the financial services sector is based on publicly available facts and information. even as late as