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fomc | 2,005 | Thank you, Mr. Chairman. In reviewing my remarks from the last meeting, I managed to find that at least one of my insights had survived the intermeeting period. If you will allow me, I quote: "While I can easily imagine looking back on these words with regret, the persistent and widespread improvements that we are now ... | 2,635 |
fomc | 2,005 | The staff forecast for average real GDP growth abroad over the forecast period has changed little from that in the March Greenbook despite swings in global oil prices, nonfuel primary commodity prices, and exchange rates, plus a significant near-term revision to the outlook for U.S. growth. However, the only minor revi... | 1,329 |
fomc | 2,005 | It strikes me that if we're going to get that significant a slowdown in imports, we should be seeing it in some upward pressure on U.S. industrial production, provided the composition of the import change is industrial materials, which theoretically would be shifted to domestic sources--that is, the share from domestic... | 103 |
fomc | 2,005 | Well, we have numbers written down for the pieces, but not ones that I think are ready for exposure. | 22 |
fomc | 2,005 | It has to affect domestic GDP because, obviously, the imports of capital goods will have an impact on the producers' durable equipment purchases, which theoretically are split into domestic and foreign producers. | 37 |
fomc | 2,005 | A very big chunk of the Q2 story is oil and relates to the seasonal adjustment procedure that is now in place for describing real oil, which we question. We think that may not translate into real-time evidence of this sort, because it is, in some sense, a statistical treatment of the data as opposed to an actual real-w... | 154 |
fomc | 2,005 | It really depends on what the monthly pattern is. It could very well be, for example, that January was up sharply, February was down, and March was down, and the average is still up 15 percent. And you keep going down, so you can't really see the difference. | 58 |
fomc | 2,005 | The people who construct these numbers write down notional placeholders for the different components for the very, very near term, but I don't think they would regard them as grounded in a lot of information. They do that to see if the number they write down for the longer term is a sensible number. | 59 |
fomc | 2,005 | We certainly haven't seen any surge in orders to domestic producers that would be indicative of that. | 18 |
fomc | 2,005 | On the spread that's opening up between average hourly compensation of employees and the ECI [Employment Cost Index], theoretically that is supposed to mean that the mix is changing. It implies that the mix is changing toward higher-skilled components, presumably. We can check that, I would assume, by looking at least ... | 80 |
fomc | 2,005 | I don't think a mix story is explaining the first-quarter divergence there. The big slowdown in the benefits component came from what the ECI is measuring as employer contributions to pension plans; there was a big drop in that component. It doesn't necessarily have to line up, in an accounting sense, with what's happe... | 83 |
fomc | 2,005 | Well, the interesting point is that it should. Otherwise, the question is whether labor income is calculated correctly. | 22 |
fomc | 2,005 | They're not measuring that exact same component on a quarterly basis in the same way. | 16 |
fomc | 2,005 | So the compensation per hour may be overestimated in that respect, if that's true. | 17 |
fomc | 2,005 | It could be. But also we have seen big discrepancies in the past that haven't necessarily ever been reconciled in later publications of the national income accounts. So it's conceivable. | 34 |
fomc | 2,005 | Those are the workers who live in that country called "discrepancy" in our world balance of payments accounts! [Laughter] | 28 |
fomc | 2,005 | Perhaps. | 2 |
fomc | 2,005 | Any other questions? | 4 |
fomc | 2,005 | I have a question for David concerning investment. At our last meeting, I certainly had the feeling that the outlook for the economy and for demand was a lot more robust than I had previously thought, and the Greenbook reflected the same view. In large part that was based on rejecting the pothole theory related to part... | 333 |
fomc | 2,005 | First of all, on whether or not we've experienced the pothole, I think you're certainly right that January isn't necessarily the perfect test. But I don't think that the hypothesis you suggested would work, in the sense that the equipment had to have been installed by the end of December to qualify for partial expensin... | 62 |
fomc | 2,005 | Not just ordered? | 4 |
fomc | 2,005 | Not just ordered. There were a couple of exceptions to that general rule, but the equipment was supposed to have already been installed. So the timing doesn't look good for the pothole story. But that doesn't necessarily mean, given how noisy those data are, that we couldn't still be seeing some pothole effect now. To ... | 206 |
fomc | 2,005 | It's a level effect. | 5 |
fomc | 2,005 | It's a level effect. We had a drop in long-term interest rates, which tended to cushion, through the cost of capital, some of the downward revision that we would have had otherwise. And we've allowed a little bit of the accelerator effect to show through. As we look at the situation, it is still the case, if one believ... | 204 |
fomc | 2,005 | President Moskow. | 4 |
fomc | 2,005 | You now have higher energy prices built into the forecast--significantly higher energy prices--and the futures market does, too. I'm just wondering if you could talk about how that factors into your thinking about potential output going forward. | 46 |
fomc | 2,005 | The rise in energy prices that we've had suggests to us--and especially as we look at those far-dated futures contracts--that this probably is going to be a drag on the level of potential output going forward. We made a more discrete adjustment in the fall to reflect that. And when we update our entire supply-side port... | 196 |
fomc | 2,005 | If we had significantly higher energy prices than we have now, what would the sensitivity be? | 18 |
fomc | 2,005 | You're raising a good question, and I don't know the answer. There could conceivably be some nonlinearity in that process. But I think we're talking about effects that are measured in tenths of a percentage point--not quarters or halves of a percentage point--in terms of the effects on multifactor productivity, or, in ... | 74 |
fomc | 2,005 | Thank you. | 3 |
fomc | 2,005 | Vice Chair. | 3 |
fomc | 2,005 | David, you referred in your remarks to the exercise shown in the package of materials for Monday's Board briefing. I'm looking at the pass-through into core inflation of the rise in energy prices, import prices, and commodity prices. If back in December '03, which is your baseline for this exercise, you had had a forec... | 110 |
fomc | 2,005 | The result of that exercise suggests, if anything, a little surprise that we didn't get a touch more pass-through. Actually, I was surprised when I first saw those results but not after I sat back and thought more carefully. Certainly, if you had told me in late 2003, when oil prices were $25 to $28 a barrel, that they... | 426 |
fomc | 2,005 | President Santomero. | 5 |
fomc | 2,005 | The first quote of NIPA [national income and product accounts] data showed a large increase in inventory accumulation outside of what we talked about in terms of oil effects. I'm rather curious about the inventory issues. Where are these inventories? Are they in final goods? Are they in intermediate goods? Are the inve... | 102 |
fomc | 2,005 | First, I'd note that we are not necessarily buying into the BEA's March assumption, which showed another very large inventory accumulation. In fact, that's one of the areas where, in writing down our forecast, we differed--to the tune of about $6 or $7 billion--with the BEA. We have a lower level of inventory investmen... | 447 |
fomc | 2,005 | The flattening of industrial production in March in that flow of-goods system seems to reflect a rather large liquidation, seasonally adjusted, of motor vehicle inventories. I was curious whether there was any awareness of that on the part of BEA, because clearly those data were available at the time when BEA made the ... | 76 |
fomc | 2,005 | They do. I don't actually have that figure in front of me. In motor vehicles, they are basically doing a unit accounting. They use different seasonals than we do, but they should be showing something like that. | 44 |
fomc | 2,005 | So they're either missing that, or they're showing a significantly larger increase in non-automotive inventories than we have. | 23 |
fomc | 2,005 | Right. | 2 |
fomc | 2,005 | President Fisher. | 3 |
fomc | 2,005 | I'd like to ask a question of Karen about import price growth, particularly in the retail sector. In terms of imported goods sold through our retail chains and the timing of the increasing price pressures we've seen, is that weighted heavily toward March and recent activity in April? Could you expand on that a little b... | 61 |
fomc | 2,005 | We collect import prices at the border, so to speak. So I can't speak to the question of this showing through to retail prices. David might want to comment on that; I don't know. Import price inflation has been surprising us a bit on the upside, and we have attributed part of that to higher global commodities prices. I... | 470 |
fomc | 2,005 | Any further questions for our economists? | 7 |
fomc | 2,005 | Mr. Chairman, I would note that I do have in front of me a table showing the BEA's assumptions for March, and the BEA is showing a liquidation of motor vehicle stocks but very large accumulations elsewhere. | 45 |
fomc | 2,005 | If there are no further questions, who would like to start off the Committee discussion? President Moskow. | 21 |
fomc | 2,005 | Thank you, Mr. Chairman. In our calls this round, we tried to get a sense of the depth and the breadth of the current soft patch and how much of it might be associated with higher energy prices. My contacts report that growth has moderated somewhat in the Seventh District. While the manufacturing sector is still quite ... | 990 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | On balance, after hitting a soft patch in March, economic activity in the Fifth District appears to have bounced back somewhat in April. The improvement was centered in manufacturing and retailing, where modest growth replaced flat activity in March. Services firms, meanwhile, continued to report the moderate growth we... | 890 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. New England and the nation seem to have hit a couple of bumps along the road to steady growth. We, like the Greenbook, don't expect the bumps to turn into potholes or disturb much except the speed of travel slightly. But we were again reminded that there is a level of uncertainty about a range ... | 1,422 |
fomc | 2,005 | President Guynn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I interpret what is characterized as softness in some of the recent data releases as an indication that at least the risks to the path of real output growth, which has averaged 31/2 percent since the end of the recession and 4.3 percent over the last eight quarters, may have increased. It's my ... | 847 |
fomc | 2,005 | President Stern. | 3 |
fomc | 2,005 | Thank you. Well, two issues have been weighing on my mind. They're really the two issues that Dave Stockton addressed. First, is the recent reduction in the Greenbook forecast roughly appropriate, or will the economy do appreciably worse or possibly significantly better than that? Second, is the forecast of modest infl... | 652 |
fomc | 2,005 | President Fisher. | 3 |
fomc | 2,005 | I realize I'm entering an ongoing conversation midstream, but sometimes it may be useful to have a fresh set of eyes and ears to at least give an interpretation of what he or she is seeing. I went back and read the minutes of the last several meetings. I'm glad to see confirmed, Mr. Stockton, that you do have a sense o... | 1,519 |
fomc | 2,005 | President Yellen. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. It has been less than a year since I returned to the policy table, but already there is a sense of deja vu all over again. [Laughter] The recent pattern of higher inflation and softer spending seems remarkably similar to the developments we witnessed late last spring and early summer--then, as ... | 1,217 |
fomc | 2,005 | President Pianalto. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. At our last meeting I said that I was happy to report that the Fourth District was no longer an outlier in the Beige Book and that economic activity in the region appeared to be gradually improving. But that warm glow appears to have been short-lived. Since our last meeting, economic activity i... | 712 |
fomc | 2,005 | President Hoenig. | 4 |
fomc | 2,005 | Mr. Chairman, I'll start off by repeating the obvious: There have been a couple of surprises since our last FOMC meeting. The economy has lost momentum after the end of the first quarter, and core inflation has continued to rise. The loss of momentum we saw in March in the first quarter has led me to join others in mar... | 1,331 |
fomc | 2,005 | President Santomero. | 5 |
fomc | 2,005 | Thank you, Mr. Chairman. Economic conditions in the Third District continued to improve in the first quarter, although at a slightly slower pace than in the previous quarter. Retail sales in the region were up slightly in March, with most merchants noting that unseasonably cold and rainy weather dampened sales of sprin... | 1,371 |
fomc | 2,005 | President Poole. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Let me start with information from my contacts at FedEx and UPS. My contact at FedEx says that they've seen no indication at all of any slowing, nor do their customers see any sign of a slowdown. At UPS, both the ground business and express business are coming in a bit below plan. Part of the s... | 674 |
fomc | 2,005 | Coffee is available, so why don't we take a break? | 12 |
fomc | 2,005 | Vice Chair. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. We think the fundamentals underpinning a forecast of a reasonably strong expansion with moderate inflation seem reasonably persuasive. However, we are less confident than we were at the last meeting. On the assumption that we continue to move the fed funds rate higher on a path close to that no... | 1,062 |
fomc | 2,005 | Governor Kohn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Unfortunately, the economic and policy situation became a lot more interesting over the intermeeting period. We thought we had an emerging inflation problem; the issue was how hard to lean against it. In the event, core inflation did come in a bit to the high side, but, in addition, economic ac... | 1,114 |
fomc | 2,005 | Governor Gramlich. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. The short-run monetary choices are getting harder. While the world oil market is suffering a demand shock caused by rapid growth in China and elsewhere, it affects the economy as a supply shock, with simultaneous worsening of inflation and unemployment. Many of us lived through just the reverse... | 1,241 |
fomc | 2,005 | Governor Olson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. In preparation for this meeting, I talked with contacts at two large banks. As all of us are aware, bank asset quality throughout all of 2003 and 2004 continually improved to the point where by the end of last year almost all bankers said in their year-end reports that asset quality cannot get ... | 544 |
fomc | 2,005 | That's unfair. [Laughter] | 7 |
fomc | 2,005 | It has been 17 years, Michael. It has been a long time. I'm inclined to support those of you who have already spoken to the strength of the underlying fundamentals and who believe the output gap is continuing to close slightly. I think we clearly communicated in the last meeting--and the market interpreted it correctly... | 286 |
fomc | 2,005 | Governor Bies. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I guess I'm going to repeat a lot of the things that others have said, but I think I will end up in a somewhat different place than some of you around the table in that I'm much more concerned about the risks of inflation than I am about those for the real economy. If we look at the first-quart... | 1,029 |
fomc | 2,005 | Governor Ferguson. | 3 |
fomc | 2,005 | Thank you very much, Mr. Chairman. Like everyone else, I've noted with some concern both the incoming evidence of a soft patch with respect to growth and a rough patch with respect to inflation. However, I also believe that the Greenbook has taken these incoming data on board with the usual wisdom and aplomb that I wou... | 1,603 |
fomc | 2,005 | Mr. Reinhart. | 5 |
fomc | 2,005 | 2 Thank you, Mr. Chairman. I'll be referring to the materials that were distributed during the coffee break. Market participants see today as another step in your journey of removing policy accommodation. As shown in the upper left panel, futures prices and survey responses indicate that a 1/4 point firming today is a ... | 2,161 |
fomc | 2,005 | Questions for Mr. Reinhart? | 7 |
fomc | 2,005 | I have just one question on the inflation swap quotes. You talked a little bit about them when you first introduced them in February. How good are those data? Is that market deep? Are the quotes indicative? Are they real transaction quotes? I'm just curious; it's intriguing stuff. | 56 |
fomc | 2,005 | It's material that was in the last Bluebook, and it is repeated again in this one, where we talk about the changes in forward-looking inflation compensation. In fact, the inflation swap market developed mostly in Europe. That's where the market is deeper, in part because in Europe apparently there are participants on b... | 202 |
fomc | 2,005 | Thank you. | 3 |
fomc | 2,005 | Further questions? | 3 |
fomc | 2,005 | I have a comment on process. I appreciate the earlier distribution of Table 1, which is a procedure we decided on at the last meeting. On reflection, I'd like to register some reservations about it. It has the effect of shifting substantive deliberations out of the Committee, and it prevents us as Committee members fro... | 181 |
fomc | 2,005 | Certainly some progress can be made in that direction, but let's be careful not to bring it to the table at this point in the meeting, because the length of the discussion is indeterminate, and we still have our 2:15 deadline. Therefore, I think it's critical that whatever we do with respect to enhancing the interactio... | 177 |
fomc | 2,005 | I would note with some irony, Mr. Chairman, that in the December 1999 memo that introduced the balance-of-risk language, it was taken for granted--I think this was on the first page--that draft language for the statement would not be circulated before the meeting because it had the potential to stifle the discussion at... | 136 |
fomc | 2,005 | You know, there's a difference from five years ago. The difference basically is that the general notion that we can all come here, sit down and have a discussion in a limited number of hours, and in that period come up with a consensus on the best wording for our statement, has proven false. It's a much more detailed d... | 394 |
fomc | 2,005 | Mr. Chairman, I was going to raise this point later, or maybe at another meeting, but I think it's consistent with the discussion we're having. I would hope that we don't foreclose the possibility, long term, of rethinking this entire process. It seems backwards to me to be trying to work on the statement before we hav... | 246 |
fomc | 2,005 | If a large enough proportion of this membership agrees with that statement, it's an obvious topic for one of our upcoming two-day meetings. The fact that the Bank of England does it is not, in and of itself, a recommendation. [Laughter] Further questions for Vincent? If not, let me get started. President Lacker raised ... | 2,321 |
fomc | 2,005 | Mr. Chairman, I have an alternative D, which may not be appropriate for today, but it might be helpful in some future meeting, so let me pass this language around. While that's going around, I'd like to say that I agree with Jack Guynn that we have a real problem in terms of the coordination of the statement and the mi... | 120 |
fomc | 2,005 | That will appear in the minutes. | 7 |
fomc | 2,005 | Oh, it will appear in the minutes. But I'm saying that I think it ought to appear in the statement, because, otherwise, the statement would not truly reflect what happened at the meeting. Anyway, I wanted to make that point--that the minutes coming out in three weeks could give a different impression from the statement... | 335 |
fomc | 2,005 | Remember, the statement is actually determined after the events that are described in the minutes. So that issue always exists. It existed the last time; it will exist in the future. The point I've tried to make to a number of members of the press is that they should always remember that what is in the minutes, even th... | 133 |
fomc | 2,005 | What I'm saying is that for our present meeting I think the statement needs to take account of the fact that we currently have a greater degree of uncertainty about the outlook for both inflation and output. That's my concern. | 42 |
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