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fomc | 2,005 | Yes. It's just a question of how many equations--or how many independent variables--you can actually manage. | 22 |
fomc | 2,005 | Any further questions for our colleagues? If not, who would like to start the Committee discussion? President Moskow. | 23 |
fomc | 2,005 | Thank you, Mr. Chairman. The story from the Seventh District is much the same as last time. We're seeing a broad-based improvement in business conditions. I would characterize it as solid growth, but not spectacular. Most of the sectors that were strong last year continue to do very well and expect good results for 200... | 295 |
fomc | 2,005 | You got to be first in something! [Laughter] | 12 |
fomc | 2,005 | Actually, Illinois is leading the Big Ten in basketball. [Laughter] They are undefeated so far. On the price front, there's more talk that higher costs for plastics and other energy-related inputs are working their way downstream, but we're certainly not hearing widespread reports of major price increases. With regard ... | 535 |
fomc | 2,005 | President Yellen. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. The Twelfth District economy continues to expand, posting growth in line with that of the nation. Consumer spending remains strong, led by gains in travel, services, retail goods, and especially housing. Businesses have also been spending, and our contacts expect to increase investment in comin... | 1,230 |
fomc | 2,005 | President Santomero. | 5 |
fomc | 2,005 | Thank you, Mr. Chairman. Economic activity in the Third District continues to expand at a moderate pace, but there is some variation across the three states of our District. Leading indicators are signaling continued solid growth in New Jersey and Delaware but more modest growth in Pennsylvania. Payroll employment in o... | 1,179 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. The New England economy seems to be growing at a slow but steady pace and weathering what so far has been a pretty snowy winter. The basic data are pretty good. In all states of our region, except Massachusetts, employment has been growing steadily at about the pace of the nation as a whole. Co... | 1,135 |
fomc | 2,005 | President Guynn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. As was the case at the time of our last meeting, I think we should be pleased with the way things are unfolding. Output continues to expand at a good and sustainable pace, we're getting solid investment spending to complement sustained consumer spending, we're getting sufficient job creation to... | 657 |
fomc | 2,005 | President Pianalto. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. My District report will balance out President Guynn's report, because economic conditions in the Fourth District have not changed very much since December. As suggested by our Beige Book report, it appears that our region's economy is still not advancing at quite the pace as the rest of the cou... | 577 |
fomc | 2,005 | President Stern. | 3 |
fomc | 2,005 | Thank you. The broad-based expansion in our District continues. Employment gains have been modest but persistent. In talking to employers, the general impression I get is that they are finding labor availability to be ample, although occasionally they've expressed some concern about the shortage of particular skills. A... | 326 |
fomc | 2,005 | First Vice President Holcomb. | 6 |
fomc | 2,005 | Thank you, Mr. Chairman. This is only the third FOMC meeting that I've had the privilege of attending, and I cannot help but notice how much the U.S. economy has improved in that short time. [Laughter] | 48 |
fomc | 2,005 | You're welcome to attend any time! | 7 |
fomc | 2,005 | I think luck has a lot to do with it. Following a pause in upward momentum last autumn, which may have reflected energy developments or election-related uncertainty, most economic indicators have firmed over the last few months. Monthly job gains were healthy during the fourth quarter. Durable goods orders showed good ... | 964 |
fomc | 2,005 | President Hoenig. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. For the economy, growth currently remains above trend and, as we all know, is likely to remain above trend several quarters forward. As a result, we are systematically approaching long-run potential GDP for the economy. I expect growth will be near 4 percent this year--above trend. There are ob... | 693 |
fomc | 2,005 | Governor Bernanke. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. The economic recovery seems well entrenched, and domestic final demand continued strong, foreshadowing healthy growth in 2005. I don't see inflation risks as having changed materially in recent months. In particular, labor costs have been remarkably subdued. However, with the recovery no longer... | 948 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Economic growth in the Fifth District has been a little stronger in recent weeks. Retail revenues seem to have picked up. According to our survey, seasonally adjusted shopper traffic was stronger in January than in December, and big-ticket sales firmed after having been weak in the previous mon... | 630 |
fomc | 2,005 | Thank you. Let's break for coffee. We could extend this for a little longer than usual, since we do have a lot of time. So let's break for 20 minutes. | 36 |
fomc | 2,005 | Governor Kohn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. My forecast for economic activity in 2005 and 2006, like the rest of yours, was for growth a little faster than the trend rate of growth in potential. That reflects my judgment that the forces that had been holding back the economy in recent years have largely dissipated, allowing the effect of... | 1,558 |
fomc | 2,005 | President Poole. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. When I talk to my business contacts, I try to let them, first of all, tell me what's bothering them. Sarbanes-Oxley and health care costs rise to the top of the hit parade there; that's about all they really want to talk about. Certainly, Sarbanes-Oxley is causing a significant increase in acco... | 727 |
fomc | 2,005 | Vice Chair. | 3 |
fomc | 2,005 | We haven't changed our view of the national outlook significantly since the last meeting. Our forecast is quite close to the Greenbook in all components, and quite close, I think, to the central tendency of the rest of your forecasts. I don't have anything material to report about the economy of the Second District tha... | 907 |
fomc | 2,005 | Governor Olson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. First, I would like to reflect briefly on one of the charts in the chart show--the chart on E&S [equipment and software] expenditures--and the possibility of the "no investment pothole" scenario. It strikes me that at this point in early February, if we are not yet certain as to the impact of t... | 1,037 |
fomc | 2,005 | Governor Ferguson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. The economy, to me at least, seems to be safely at what I would describe as a mid-cycle sweet spot, with inflation generally contained and growth at about potential. The staff's outlook and the consensus forecast--the Greenbook baseline and the central tendencies on chart 15--were all consisten... | 1,434 |
fomc | 2,005 | Governor Bies. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. To me, the forecasts presented in the Greenbook and the consensus forecast of those from the private sector paint a sound economic picture for 2005--one of solid economic growth and an unemployment rate continuing its slow downward trend. And I'm comfortable that the removal of policy accommoda... | 1,040 |
fomc | 2,005 | Governor Gramlich. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. This has been a quiet month in Lake Wobegon. The growth of aggregate demand has been good and the growth of output reasonably good, though we would all feel better with more growth in exports and in import-competing sectors. Core inflation keeps bouncing along well within at least my target ran... | 873 |
fomc | 2,005 | Thank you. Vincent. | 5 |
fomc | 2,005 | 5 Thank you, Mr. Chairman. At least from the perspective of most investors, your policy decision today seems foreordained. The universal belief in the market holds that the Committee will raise its target for the federal funds rate 1/4 point, to 21/2 percent and issue virtually the same announcement as was released aft... | 2,254 |
fomc | 2,005 | Questions for Vincent? | 4 |
fomc | 2,005 | Vincent, in exhibit 2, this is a measure of the point on the calendar where the market expects us to stop? | 26 |
fomc | 2,005 | To stop tightening, yes. | 6 |
fomc | 2,005 | Meaning it's the point where the future path of the fed funds rate from that point on is perfectly flat. So it's not the probability of when we will first pause. | 33 |
fomc | 2,005 | Right. This is an alternative explanation that says you will not pause but will stop. This views the expected federal funds futures curve as a weighted average of a succession of moves followed by a flat funds rate. | 41 |
fomc | 2,005 | I interpreted you as saying that an identifying assumption more or less built in is that we move, move, move, move, move and then stop--that we don't pause and then continue moving again. | 40 |
fomc | 2,005 | Right. But I would point out that our understanding of expectations formation is such that you could also direct it to mean that you'll do a 1/4 point move every other meeting and fit the probability of those events. It's just what identifying assumption you use. | 52 |
fomc | 2,005 | Does this use options at all? | 7 |
fomc | 2,005 | No, this just uses the futures rate. But, actually, that has been an extension we're looking at to see what this model does imply about the distribution, the pdf [probability density function] from options prices. | 44 |
fomc | 2,005 | Well, with enough pdf you wouldn't need the identifying assumption. | 12 |
fomc | 2,005 | Right. | 2 |
fomc | 2,005 | Again, I'm sorry to ask this; I should know the answer. But are you projecting forward the range of estimated equilibrium real rates? | 27 |
fomc | 2,005 | I'm assuming that those "rivers" just move sideways. | 12 |
fomc | 2,005 | That they move sideways? Does that make sense? | 10 |
fomc | 2,005 | Probably not. A number of you have articulated over the course of this meeting reasons why they'd probably drift up over time, one of which is that as the output gap closes, you have less room to go and you presumably would have a higher real rate. | 51 |
fomc | 2,005 | Wouldn't that significantly alter the path in the upper panels if that were true? | 16 |
fomc | 2,005 | If you follow the staff forecast, the answer is "not really." It could shift these colors over a bar or two but it would not materially influence the story. | 33 |
fomc | 2,005 | Further questions? | 3 |
fomc | 2,005 | Vincent, have you drafted a sentence to see what alternative 2 would look like on exhibit 3 using probability? | 24 |
fomc | 2,005 | Yes, I circulated that to the Committee back in August, I think. Essentially it says that the Committee judges that if the current level of the federal funds rate were to be maintained, the probability of output growth being above its sustainable pace about equals the probability that it would be below. Also, the proba... | 152 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | Thank you. I have a question, Vincent. My memory may not serve me well, but I recall our going through the communications process step-by-step. One of the reasons--though maybe not the only reason--we got into the discussion of risks for the future had to do with the fact that we had previously used a bias formulation,... | 267 |
fomc | 2,005 | I would say that there are tradeoffs possible. That is, if all you did was cut out the last paragraph, it would be seen and interpreted by markets as cutting back on the degree of transparency in a retrograde step. But if you wanted to, you could expand your characterization of the outlook in the previous paragraph, im... | 129 |
fomc | 2,005 | I've sensed from time to time that a couple of people around the table have agreed with the general premise that trying to tell the markets where policy is going--except when we really needed to do it, which is how I would characterize the situation in 2003 and 2004--isn't something they're necessarily comfortable with... | 73 |
fomc | 2,005 | But telling people you're not sure of the future direction of rates is giving them information, and it may be superior to being silent about that and leaving them to form potentially inappropriate expectations. | 36 |
fomc | 2,005 | Yes. | 2 |
fomc | 2,005 | Should we infer from your presentation that you would not change the structure of this paragraph until we reach the point where the probability of a move up equals the probability of a move down? Would you say that the point at which the desirable path of the fed funds rate is flat is the optimal time for evolution or ... | 69 |
fomc | 2,005 | I think there are going to be a couple of speed bumps in the process along the way. The first is earlier in the rationale portion of the paragraph in your characterization of the degree of policy accommodation. One could imagine a succession of steps, as you continue to move the funds rate up, that will get you to a po... | 94 |
fomc | 2,005 | You'd say that would be an obvious intermediate change. | 11 |
fomc | 2,005 | That's the first speed bump that you think about if you try to walk through the changes that might need to be made in the statement going forward given, say, the Greenbook outlook. If you wanted to introduce new language, an opportunity to do so would come when you're just not quite sure of the direction of rates--when... | 154 |
fomc | 2,005 | I have one more question. Should one also infer from your presentation that you think the optimal path of monetary policy in the period ahead is to get behind us all the moves necessary to get the funds rate closer to the midpoint of the range of its equilibrium? Are you saying that we should steadily get those moves d... | 88 |
fomc | 2,005 | I don't think there was advocacy in the two different interpretations of the federal funds curve, only a suggestion that if you are not of the view that the path will involve a 1/4 point move at every meeting, it would be helpful to define "measured" once again. I say that because there is a real risk that market parti... | 138 |
fomc | 2,005 | And yet if you repeat that language in the minutes again, as you suggested, reasonable people might interpret that as a conscious decision to try to signal in some sense that a pause is approaching. That's a little awkward to justify, given that we're in a period of time where I think the probability the market is attr... | 82 |
fomc | 2,005 | But you could make it a symmetric statement. You could say that the measured pace language is not inconsistent with a pause in the policy of 25 basis point moves at each meeting nor with a larger move. There was at least one member who indicated a sentiment for a firmer policy. | 57 |
fomc | 2,005 | We originally raised the issue of accommodation when we hit 1.75 on the funds rate on the way down. At what point do we begin to get responses? I haven't heard anybody raise the question as to a seeming asymmetry in our judgment of where accommodation is, unless it's perceived as a significantly moving target. One coul... | 1,428 |
fomc | 2,005 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 2,005 | Governor Kohn. | 4 |
fomc | 2,005 | I support the recommendation. | 5 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | I support the recommendation also. | 6 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | I do, as well. | 6 |
fomc | 2,005 | I support the recommendation. | 5 |
fomc | 2,005 | I support the recommendation. | 5 |
fomc | 2,005 | I support it. | 4 |
fomc | 2,005 | I support your recommendation. | 5 |
fomc | 2,005 | I support your recommendation, but I do want to make a couple of brief comments. While we're sitting around enjoying this, as you put it, I think it would be helpful to flesh out these three alternatives--probably within the Bluebook. I think that would be the appropriate way to start looking at this. | 62 |
fomc | 2,005 | I've been impressed with what Vincent has been doing here; I think this has been very helpful. And I think it's a useful way of coming at the problem--anticipating inevitable changes and being sufficiently ahead of the curve so that we can all come to an agreement as to what we will do, when we have to do it, because w... | 77 |
fomc | 2,005 | So, fleshing them out in the Bluebook would be my suggestion. Also, with regard to the Microsoft dividend, I do want to assure Governor Ferguson that we're hoping to move it to Michigan. [Laughter] | 44 |
fomc | 2,005 | I support the recommendation. | 5 |
fomc | 2,005 | I support the recommendation and the reasoning. [Laughter] | 12 |
fomc | 2,005 | I support the recommendation. | 5 |
fomc | 2,005 | I support the recommendation, and I promise to try to be happy. [Laughter] | 18 |
fomc | 2,005 | I support the recommendation and I am happy. [Laughter] | 13 |
fomc | 2,005 | I support your recommendation. | 5 |
fomc | 2,005 | I support your recommendation, but I must say you leave us all feeling like a frog in water--[laughter]--with the temperature of the water gradually rising. The water gets hotter but it's not so hot that it's boiling. You have to let us know when it really starts to get too hot. | 62 |
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