Fed's Ferguson: Y2K Won't Constrain Fed During Autumn
May 27, 1999 - Dow Jones Newswires
By Peter Goldstein
BRUSSELS -- A senior U.S. Federal Reserve official asserts that the
millennium change won't impinge on Fed policy this autumn, countering
market concerns about monetary paralysis in the months leading up to Jan.
1, 2000.
"I believe that the monetary policy of the United States will continue to be
conducted with an eye to our mission of price stability and maximum
sustainable growth," U.S. Fed Governor Roger Ferguson told Dow Jones
Newswires in written responses to interview questions. "Year 2000 will not
impinge on the normal conduct of monetary policy during the autumn of
1999," he added.
Ferguson, the Fed's point man on Y2K issues, is also active at the global
level in efforts to mobilize governments, financial markets, and companies
for the millennium change. Ferguson chairs the Joint Year 2000 Council,
established at the Basel-based Bank for International Settlements in April
1998 to coordinate Y2K action by central banks, clearing organizations,
and various financial regulatory bodies.
In the U.S., some analysts predict that the Fed will adopt a hands-off
approach to monetary policy after August to avoid roiling financial markets
already spooked by possible Y2K glitches.
This has led some analysts to predict that the Fed might choose to
preemptively tighten interest rates at the Aug. 24 meeting of its
policy-making Federal Open Market Committee, if it appeared that
inflation pressures are still lurking at that point. For the rest of the year, they
see clear Fed sailing until the dust has settled on Y2K problems.
Ferguson made no predictions about specific Fed policy moves in the latter
part of this year, but he noted that the Fed stands ready to deal with any
liquidity problems arising from either Y2K malfunctions in the private
sector, or from strong cash demand by a jittery U.S. public.
"The Federal Reserve does not believe that the U.S. public needs to hold
excess cash in anticipation of the century rollover. While there may be
isolated problems, we expect the usual payment methods used in the U.S.
to operate," Ferguson said.
On the other hand, he noted that the Fed "wants the U.S. public to be
confident that plenty of cash will be available, and we will be prepared to
provide currency, whatever the level of demand might be."
The Fed announced previously that it is increasing its currency in inventory
by roughly one-third to about $200 billion toward the end of this year to
prepare for the possibility that cash demand could surge around the time of
the millennium changeover.
And this week, the Fed announced plans for a special facility to lend
money to banks for possible Y2K-related liquidity needs between Nov. 1
and April 7 2000.
With a bit more than seven months to go before the Y2K milestone, a huge
amount of uncertainty persists among markets, governments, and the public
about the computer bug's impact. Already, there are signs that some
investors are shifting assets to cash from more risky instruments to avoid
any unpleasant surprises.
Financial market leaders in the U.S. and Europe are urging a go-slow
approach to clearance, settlement, and transaction operations in the first
days of 2000 to allow maneuvering room in the event of
computer-generated glitches.
Speaking in his global capacity as Joint Year 2000 Council chairman,
Ferguson gave a cautiously upbeat assessment of overall Y2k
preparations, particularly in the financial sector. "I would agree that much
has been done and much remains to be done. This is not a time for
complacency," he remarked.
He warned that even in the countries considered most advanced in Y2K
preparations - such as the U.S. - there is room for improvement on
disclosure and transparency. He stressed that lack of information sharing is
the biggest danger to market and economic stability during the millennium
change.
"We do know that even in some industrialized countries, some sectors,
particularly utilities, and to some extent state and local governments, need
to disclose more regarding preparations," Ferguson said. "Also, some
countries were slower to come to recognize the Year 2000 challenge, but
now I would say that the degree of awareness among leaders in the
majority of countries is high."
In all countries and sectors, Ferguson highlighted the importance of
disclosure, since there is a risk that both investors and business clients will
opt for a "move to certainty" in the context of Y2K unknowns.
"I do think that many businesses will probably evaluate counterparties in
terms of Year 2000 progress," the Fed Governor said. Without proper
transparency on the state of preparations, "counterparties and market
participants are likely to believe rumors and assume the worst outcomes,
which might not be warranted if the facts were fully known."
In the financial sector, groups like the U.S. Securities Industry Association
and Brussels-based clearance group Euroclear are spearheading
industry-wide tests to make sure the markets function properly after Jan. 1.
In general, the results of these tests are encouraging.
But some market participants and Y2K pundits warn that the financial
system is only as robust as the other systems on which it relies;
telecommunications, energy, water, and transport networks. There's a
need, they argue, for more broad-based testing outside the markets.
Ferguson seemed skeptical about this approach, noting that "broader,
industry-wide testing has proven to be costly and time consuming to
organize, and certaintly testing across sectors is likely to be no less
complex."
Given the short amount of time left before the New Year, Ferguson said
huge, arduous dry runs are "probably not the best use of resources over
the remaining months."
-By Peter Goldstein;322-280-0130;pgoldstein@ap.org
interactive.wsj.com
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<"Also, some countries were slower to come to recognize the Year 2000 challenge, but now I would say that the degree of awareness among leaders in the majority of countries is high.">
What good is awareness, without action. WE'RE A GLOBAL ECONOMY. What happens elseswhere ultimately affects our stockmarket, the FED, and yes ... even the local bank.
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VENEZUELA (Where U.S. gets 17% of their oil)
"Venezuela needs to spend $1.5 billion in an effort to prevent possible computer chaos coinciding with the change to the year 2000, with the nation's electrical system particularly vulnerable, senior officials said on Wednesday. Presidential Chief of Staff Alfredo Pena said the previous government, which left office in February, made absolutely no preparations for a problem that requires urgent attention. ''We are very behind and it is very, very serious. We need $1.5 billion for this, which was not approved by the previous government,'' Pena told journalists at the Miraflores presidential palace ...
abcnews.go.com
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INDONESIA
JAKARTA, May 26 (Reuters) - Indonesia's debt-laden banks have paid scant attention to the countdown to the year 2000 as they devote all their energy and resources to simply surviving Indonesia's economic meltdown. With some banks trying to raise more than a billion dollars through rights issues just to stay afloat, the costly task of preparing their computers against the millennium bug biting as January 1, 2000 dawns is beyond their reach. ''Y2K is definitely not a priority for many banks,'' says ING Barings banking analyst Limi Halim. ''First of all, they have to struggle just to survive.'' ...
infoseek.go.com
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ITALY
OFFICIALS given the task of ridding Italy of the millennium bug issued a warning yesterday that, with just over seven months to the deadline, a promised £2 million budget had yet to be approved by parliament ... "Italy is going to crash, and we are going to be crucified," Romano Oneda, the education expert on Italy's Year 2000 Committee, said. "We are supposed to make things go so smoothly that nobody would realise there was ever a problem. Instead we will be the scapegoats. We have only consultative powers, and no one is listening to us." ... Augusto Leggio, whose task is to persuade the transport and telecommunications sectors to face up to Y2K, said the problem was "so vast there is no point in getting hysterical". He said the Interior Ministry, which controls police and immigration services, hoped to guarantee most essential services by the end of this year, but would not be fully compliant until July 2000. "I don't think they have quite grasped what this is all about," one official said.
Message 9525386
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Just a few months ago, Lawrence K. Gershwin of the National Intelligence Council in Washington, warned Europe was lagging behind the United States in fixup of problems from the Y2K bug. Gershwin told a congressional hearing that most of the computer focus of Western Europe had been directed toward the euro monetary conversion, postponing work on Y2K remedies.
vny.com
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About a week or two ago, I believe it was Koskinen who said that they were very suprised to see how far behind France, Germany, Spain and Italy were behind in Y2K remediation. If anyone could find that link, I would greatly appreciate it.
Thanks,
Cheryl
217 days till ... |
