MR. WARSH
Since we last met , as Bill said at the outset , we witnessed ten-year Treasury yields increase on the order of between 30 and 50 basis points .
MR. WARSH
Let me build on a couple of remarks that Vice Chairman Geithner made about risks now in the financial markets .
MR. KOHN
The Board approved a reduction in the spread between the primary credit rate and the FOMC 's target funds rate to bring the primary credit rate to 5 3/4 percent .
MR. KOHN
The Federal Reserve will continue to accept a broad range of collateral for discount window loans , including home mortgages and related assets .
MR. ROSENGREN
-LSB- Laughter -RSB- Somewhat surprising to me has been the lack of spillover to the rest of the economy from the problems in residential investment .
MR. DUDLEY
The rise in high-yield debt spreads is important for banks that still have significant leveraged-loan exposure that they hope to distribute to the capital markets .
MR. DUDLEY
I also request a vote to ratify the swap agreement with the Swiss National Bank that Chairman Bernanke discussed earlier .
MR. KOHN
For some time I thought that the risk of a shortfall from our central tendency outweighed the risk of an overshoot , mainly centered on housing and consumption .
MR. DUDLEY
The matrix shown in exhibit 3 , which shows the correlations since the March FOMC meeting , looks similar to exhibit 1 .
MR. DUDLEY
Finally , the survey of the primary dealers shows little change in interest rate expectations since the last FOMC meeting .
MR. ROSENGREN
However , these improvements are tenuous , and the ability to raise funds in a number of short-term financial markets remains quite difficult .
MS. YELLEN
In addition to tighter financial conditions , lower structural productivity growth was the reason that we lowered our forecast for real GDP growth to 2 1/4 percent in 2008 .
MS. YELLEN
The Greenbook has long highlighted , and we have long worried about , the possibility and potential consequences of a broader shift in risk perceptions .
MS. YELLEN
A key development during the intermeeting period was the downward revision of real GDP growth over the 2004-06 period .
MR. WARSH
The financial markets have really provided wind at the back of the broader economy throughout this most recent period , even until a month ago .
MR. WARSH
My base case assessment there has a much lower confidence level , both in terms of timing and in terms of outcome .
VICE CHAIRMAN GEITHNER
Asset prices and risk premiums may have to move further as more deleveraging takes place and assets are liquidated .
MR. ROSENGREN
Given the use of subcontractors and with little obvious economies of scale , the primary advantage of large homebuilders would seem to be access to external finance , which allows them to purchase large tracts of land .
MR. DUDLEY
One should expect that the tightening of credit standards in the corporate sector would generate some rise in default rates independent of other developments .
MR. DUDLEY
In part , this greater deterioration reflects the fact that loss estimates have been trending higher , putting the higher-rated tranches more in harm 's way .
MR. DUDLEY
It also reflects efforts to hedge subprime risk by going short these indexes by people who ca n't liquidate securities easily .
MR. DUDLEY
The effective shutdown of the CDO and CLO markets has , in turn , raised questions about the sustainability of the strong bid by private equity firms to conduct leveraged buyouts .
MR. DUDLEY
The loss of confidence among investors in the ability to assess the value and risks associated with this structured product has led to a sharp drop in CDO and CLO issuance .
MR. DUDLEY
Two other market developments deserve a brief mention before I turn to dealer expectations concerning monetary policy and a brief look at inflation expectations .
MR. DUDLEY
You can see that by the fact that U.S. 10-year Treasury note yields are still fairly low , trading around 4.4 percent .
MR. DUDLEY
More recently , however , they have diverged a bit , with the Board staff measure showing a more persistent increase following the September FOMC meeting .
MR. DUDLEY
The rating agency models have been battle-tested over a much longer period and have been shown to be robust across a broad range of environments .
MR. DUDLEY
Today , I want to focus on the significant rise in long-dated Treasury yields that has occurred since the last FOMC meeting .
MR. DUDLEY
Second , bank backstop liquidity facilities have been triggered as investor appetite for asset-backed commercial paper has fallen sharply .
MR. DUDLEY
Turning to the first question , the losses in subprime mortgages had wide-ranging effects because the poor investment performance made investors much less willing to invest in structured-finance products more generally .
MR. DUDLEY
This pressure on bank balance sheets -- both existing and anticipated -- has led to significant dysfunction in financial markets .
MR. DUDLEY
In addition , these depository institutions have turned to the Federal Home Loan Bank system as a source of term funding .
MR. DUDLEY
Exhibits 19 and 20 compare the dealer surveys before the August 7 FOMC meeting and before the current FOMC meeting .
MR. LOCKHART
It is a fair question whether the process of information revelation -- that is , removing uncertainty -- will be accelerated by an aggressive rate cut .
MR. WARSH
Having spent a lot of time in New York in the past several weeks , I think that , if that was a wake-up call , many market participants seem to have hit the snooze button .
MR. DUDLEY
Second , what is the ongoing risk of contagion from the market area that has experienced the most stress -- the subprime mortgage market -- to other markets ?
MR. DUDLEY
First , the dealers ' forecasts are modal forecasts and do not reflect the downside risks that many dealers now believe have emerged in the growth outlook .
MR. DUDLEY
The good news is that markets have generally remained liquid and well functioning , with a minor exception on the New York Stock Exchange on February 27 .
MR. DUDLEY
An investor with speculative risk positions that would be vulnerable to economic weakness might hedge these risks by buying Eurodollar futures contracts .