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fomc | 2,005 | Well, we think that participation rate was above the trend. Let me set the facts first. The actual participation rate was about trendless from 1990 through 2000. We have the trend in our new model running at about 66.6 or so through that period, including through the late 1990s. We have the participation rates in the y... | 86 |
fomc | 2,005 | By about 1/2 point, I guess. | 11 |
fomc | 2,005 | Correct--at its peak. Then, as the economy softened and came into the recession in 2001, the participation rate first came back to its trend. Subsequently, through the period from 2002 through 2004, it softened and went below trend. In our projection, going forward we anticipate the actual participation rate to hold ab... | 92 |
fomc | 2,005 | Right. | 2 |
fomc | 2,005 | So, it's true that this decline in the trend is an important feature of our outlook for the labor market. | 22 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | For a variety of reasons, I've had some inclination to look over the intricacies of the work that you've been doing on the labor force participation rate. I find it very interesting, and I think there are a number of ways one can look at data in this area and separate out cyclical and trend developments. Looking at the... | 166 |
fomc | 2,005 | As with all econometric estimates, we do have a range of uncertainty. On our estimates, the trend participation rate now is 66.3 percent, which is just a couple of tenths above its current level. Our reading of the article that was published in your Bank's Review is that Katharine Bradbury's estimates run from 66.8 at ... | 111 |
fomc | 2,005 | I don't think it's worthwhile to get into a discussion of the two approaches--granted that the statistical methods are very interesting and I've yet to really understand them all. That's my problem; it's not your problem. I'm just asking about your sense of a confidence interval or band of uncertainty. | 57 |
fomc | 2,005 | Our confidence interval, if we were to state it, perhaps would run up to 67. If we were really stretching, maybe we could see a trend participation rate in the neighborhood of 67. I, frankly, find that a little hard to believe, given the strength of the demographic forces that we think we see pushing down the trend par... | 155 |
fomc | 2,005 | That's the range of uncertainty. | 6 |
fomc | 2,005 | But that 67 would really be pushing it. That would be taking into account that there probably are considerations outside of the model and that models never quite work out as well as econometricians or empirical investigators hope. But at the end of the day we believe that the case is fairly strong for some downward til... | 68 |
fomc | 2,005 | Thanks. | 2 |
fomc | 2,005 | President Hoenig. | 4 |
fomc | 2,005 | Yes, I have just a quick question. We've talked a great deal about the intricacies of measuring the various price indexes--the PCE or whatever. I want to clarify, though, that--regardless of which index one is looking at and adjusting--the trend line on inflation is up over the last 12 to 18 months. Even with these adj... | 92 |
fomc | 2,005 | Yes. Our price projection has moved up. The best measure of that may be what has happened to the core PCE price index. Let's see, now that I'm looking at the numbers I'm about to eat my words. In 2002, on the revised figures, core PCE inflation was at 2.2 percent and we now have it at 2.0. So if one takes as the trend ... | 145 |
fomc | 2,005 | It's higher than we thought, but not getting higher? | 11 |
fomc | 2,005 | But not getting higher, yes. | 7 |
fomc | 2,005 | Any further questions for our colleagues? If not, would somebody like to start the general discussion? President Moskow. | 23 |
fomc | 2,005 | Thank you, Mr. Chairman. There haven't been many changes in our region since the last meeting, so I'll keep my comments about our region brief. Business conditions around the Seventh District are generally good, although we still lag the nation. Labor markets continue to improve gradually, and inflationary pressures re... | 862 |
fomc | 2,005 | President Fisher. | 3 |
fomc | 2,005 | Mr. Chairman, as reported in the Beige Book, activity in our District has picked up substantially. There's a tremendous amount of activity in all but the manufacturing sector. And there's an enormous surge in confidence, particularly in Texas, even though that may seem like a redundancy to talk about confident Texans! ... | 1,174 |
fomc | 2,005 | President Yellen. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Recent data, including the benchmark revisions, have altered my perception of the economic scene noticeably. We now see more underlying strength in economic activity relative to potential through the second quarter and into July. The July employment report suggests that job growth has also gain... | 1,135 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Incoming economic data since our last meeting have been consistent with a reasonably paced recovery and well-contained inflation. Payroll employment has been solid. It has even accelerated a bit lately, indicating steady improvement in overall labor market conditions. The ISM [Institute for Sup... | 779 |
fomc | 2,005 | President Santomero. | 5 |
fomc | 2,005 | Thank you, Mr. Chairman. As expected, the economic softening we saw in the Third District in late spring was temporary, and economic conditions in the region have strengthened since our last meeting. Retail sales in the District, which had fallen in May, improved in June and early July. We saw gains in most categories,... | 1,117 |
fomc | 2,005 | President Stern. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. The District economy continues to track the national economy quite closely, as it has for a long time. And as I commented at the last meeting, what is striking about the District economy right now is the breadth of the economic expansion. Virtually all sectors are either strong or improving, an... | 553 |
fomc | 2,005 | President Guynn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Consistent with incoming data on the national economy, business conditions in our part of the Southeast have remained positive since our last meeting. In fact, I found it more difficult than usual to answer the questions: "What has changed?" and "What are we seeing and hearing in the region tha... | 1,231 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. In assessing all of the information about the District that our Bank staff had gathered for this Open Market Committee meeting, and in my own interactions with contacts around the region, a few words stand out because they were repeated so often. And they are different words than would come to ... | 1,857 |
fomc | 2,005 | May I suggest that if you have ideas or notions about how to change the statement, write a memorandum to the Committee well before the meeting, and the Secretariat will circulate it. | 35 |
fomc | 2,005 | Okay. | 2 |
fomc | 2,005 | There's no reason why you have to wait until the last few days if you have some ideas to suggest. | 21 |
fomc | 2,005 | I think that would be a helpful thing to do. I, by no means, think I have the perfect answer. Probably none of us does. | 30 |
fomc | 2,005 | You may galvanize the discussion on the relevant issues. Clearly, there is a limited life expectancy for the particular statement we're using now. My own judgment is that we may luck out in the sense that the markets will perceive changes that are going on in the economy and will move the forward federal funds rate in ... | 116 |
fomc | 2,005 | President Pianalto. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. As I talk to my business contacts in the Fourth District, I'm struck by the lack of any specific concerns about the near-term economic outlook. The business community appears to be optimistic about the remainder of this year--they see diminishing inflation concerns and a brightening growth outl... | 540 |
fomc | 2,005 | President Hoenig. | 4 |
fomc | 2,005 | Mr. Chairman, let me start with some thoughts on the national economy. I do expect growth in real GDP to average about 33/4 percent this year and 31/2 percent next year. While this is somewhat slower than last year, it remains above trend. And the monetary policy and financial conditions currently in place I think are ... | 841 |
fomc | 2,005 | President Poole. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. My contacts led off almost universally with comments such as: "Things look great;" "Everything is steady-as-she-goes;" and "All business areas are strong." And I'd just like to fill in a few observations here. My Wal-Mart contact--and as I think you know, Wal-Mart has been very concerned about ... | 781 |
fomc | 2,005 | Vice Chair. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. Like everyone else, we think growth has strengthened since our last meeting. We're going into the second half with more forward momentum, and this has been accompanied by a broad-based improvement in confidence about the outlook. We expect a stronger second half of '05 than we did at the last m... | 731 |
fomc | 2,005 | Governor Olson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. August of the off-election year is a time when we can take stock of how the Congress has responded to certain issues. As we began this year hopeful that Congress would address some issues that had important fiscal policy implications, I think now is an appropriate time to review to see what imp... | 1,099 |
fomc | 2,005 | Governor Kohn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. As many of you have remarked, underlying demand has shown a surprising degree of vigor over the intermeeting period. Strength in final demand should show through to output as the mini-inventory cycle works itself out. This strength, together with revisions to estimates of the level and rate of ... | 1,156 |
fomc | 2,005 | Governor Bies. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I want to focus my comments today on some macroeconomic perspectives and on what we're learning in the supervisory reviews of mortgage products that we and other regulators are undertaking now. On the positive side, when we look at the large volume of ARMs in existence, most of them are of the ... | 1,129 |
fomc | 2,005 | Governor Ferguson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. The incoming data show broad-based support for growth, with inflation--at least in the most recent readings--relatively well contained. Final demand seems to be robust, with consumers, housing, and to some degree business investment spending, all making contributions. No doubt some of these dat... | 1,126 |
fomc | 2,005 | Thank you very much. Let's move on to Brian Madigan. | 13 |
fomc | 2,005 | 3 Thank you, Mr. Chairman. I'll be referring to the package of charts distributed during the break entitled "Material for Briefing on Monetary Policy Alternatives." Your monetary policy discussion today takes place against a backdrop of significant revisions to the economic outlook and substantial changes in financial ... | 2,581 |
fomc | 2,005 | Questions for Brian? | 4 |
fomc | 2,005 | Just one. Brian, you had on exhibit 4 an interesting simulation in the scenario with a higher term premium. But an alternative you didn't simulate is what happens if the relatively low term premia that we are observing now stay in place for some time. There are a number of people who think that that has short-term impl... | 92 |
fomc | 2,005 | I think that would not be notably different from the Greenbook scenario where essentially we do have the term premium going away but very slowly. | 27 |
fomc | 2,005 | Okay. So in some sense, the Greenbook scenario covers the current situation, and then a very, very gradual movement up in the term premium. | 30 |
fomc | 2,005 | Yes. | 2 |
fomc | 2,005 | The Greenbook baseline does. | 6 |
fomc | 2,005 | So you have the same path here for the reversion of the term premium to its historic average as is in the Greenbook baseline? | 27 |
fomc | 2,005 | That's right. | 3 |
fomc | 2,005 | That's for a slow reversion, right? The other one that you have here involves a very rapid reversion. | 23 |
fomc | 2,005 | Yes, that's correct. | 5 |
fomc | 2,005 | Further questions for Brian? If not, let me add my thoughts, wherever they may go. [Laughter] I thought it was quite interesting to hear the tone of this Committee's view that the inflation rate is gradually moving up and that's not particularly worrisome, except that basis points keep getting added to basis points and... | 2,787 |
fomc | 2,005 | Thank you, Mr. Chairman. I support the recommendation for 25 basis points, and I support the recommendation that we repeat the statement. I would have two suggestions on the rationale part of the statement. First, in row 3 I would eliminate the word "gradually" and just say "labor market conditions continue to improve.... | 229 |
fomc | 2,005 | We may not be able to. President Yellen. | 11 |
fomc | 2,005 | Mr. Chairman, I support your recommendation and agree with the rationale that you gave for it. | 19 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | I support your recommendation, Mr. Chairman, and I look forward to working on evolving the statement language for use at some point. | 26 |
fomc | 2,005 | President Hoenig. | 4 |
fomc | 2,005 | Mr. Chairman, I think we're a little behind the curve. But I don't see a better solution in terms of going forward, so I support your recommendation. | 32 |
fomc | 2,005 | President Santomero. | 5 |
fomc | 2,005 | I support your recommendation, Mr. Chairman. The only thing I would do to adjust the alternative B language is to think about removing the word "gradually." If this is gradual, I don't know what rapid is. | 44 |
fomc | 2,005 | Governor Kohn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I support your recommendation. Unlike President Minehan, I don't really look forward to evolving the language. [Laughter] On the "gradually" issue, I guess I don't think things have changed all that much. If we look at 6-month moving averages of employment growth, we've been stuck in the same r... | 150 |
fomc | 2,005 | Just to rejoin, I wouldn't describe this as a "rapidly" improving labor market but I would argue that it is improving--period. That's probably a better characterization of the last 12 months, the year to date, and the last three months. Numbers of 180,000 are indicative of a pretty good job market. That's the only issu... | 95 |
fomc | 2,005 | I think Bill Poole's caveat is right here. Even if you're technically correct, it's questionable how much we want to change the statement language if we don't have to. | 35 |
fomc | 2,005 | That's fine. | 3 |
fomc | 2,005 | You know, initial claims have not moved all that much since the last meeting, so it's a little hard to make the case. And any word that we change now, since we're changing so little, is going to be made more of than I think we'd want because there are so many people out there who are being paid to read this statement a... | 116 |
fomc | 2,005 | Fair enough. | 3 |
fomc | 2,005 | President Pianalto. | 4 |
fomc | 2,005 | Mr. Chairman, I support your recommendation. And given the comment that you just made about the less we change the statement the better, I do like President Poole's recommendation about the order of the wording in section 4 because that is a little more like our previous statement on inflation. Also, given our comments... | 151 |
fomc | 2,005 | President Stern. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. I, too, am comfortable with your recommendation, and I'm also happy to resist the temptation to change the language any more than necessary at this point. Going forward, my preference would be to continue, where possible, to provide some guidance. But that's an issue for another day. | 63 |
fomc | 2,005 | President Moskow. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I support your recommendation. On the word "gradual," I actually would like to see it come out, too, but I don't feel that strongly about it. My logic was this: My recollection is that we put the word "gradual" in after a very weak May employment report that was originally 73,000 in payroll job... | 201 |
fomc | 2,005 | President Fisher. | 3 |
fomc | 2,005 | I support the recommendation, Mr. Chairman, and I'm indifferent on the word "gradually." I like President Poole's rephrasing of the fourth box down. I think it makes grammatical sense, but I'm not going to fight over it. | 50 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | I support your recommendation, Mr. Chairman. I'm relatively agnostic on language, though I slightly prefer President Poole's suggestion on section number four. If I were going to put my two cents in, I might suggest adding something along the lines of an "unwelcome further rise in inflation," but I'll wait. | 63 |
fomc | 2,005 | President Guynn. | 4 |
fomc | 2,005 | Mr. Chairman, I support your recommendation. While accepting your arguments against fiddling with the wording, I must say that I also would prefer to take the word "gradually" out. And I share Sandy's concern that, read literally, the phrase "core inflation has been relatively low" could be interpreted as a comfort lev... | 106 |
fomc | 2,005 | Governor Olson. | 3 |
fomc | 2,005 | I support both the new target level and the language in alternative B. On paragraph 3, I did not try to compare it word for word with the previous characterizations, but my sense is that this is a significant change from the pattern we've used in that paragraph, and I think it's appropriate. | 60 |
fomc | 2,005 | Governor Ferguson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. I support your recommendation. With respect to the language, I think the most important set of changes here is not in paragraph 3 but in paragraph 4. And I actually think having the language read the way it is written now in alternative B, as opposed to President Poole's suggestion, emphasizes ... | 89 |
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