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fomc | 2,006 | It's a big revision, and as you can imagine, we agonized a lot about "isn't this is a big revision for just six weeks of information." The problem we confronted was that, if just the incoming data had been worse than we thought, we would not have made a revision as large as this. But in each case, the weakness in the d... | 591 |
fomc | 2,006 | It is very different from what I am hearing from people. | 12 |
fomc | 2,006 | I want to reinforce a little of what Larry said. In this forecast, growth is just a bit below potential, there is a modest rise in the unemployment rate over the next six or seven quarters in the context of interest rates that have increased considerably and a fiscal policy that was swinging from considerable stimulus ... | 144 |
fomc | 2,006 | President Yellen. | 4 |
fomc | 2,006 | This is a question for Steve or for Karen. In Monday's international briefing you referred, and I'll quote, to the possibility that we may be "nearing limits on global capacity" when you were discussing foreign inflation prospects. I'm really following up on President Fisher's question here. I want just to clarify what... | 210 |
fomc | 2,006 | Yes, it certainly is. | 6 |
fomc | 2,006 | I mean, this is a large topic, but I don't mean to ask too large a question. I just want to clarify what your thinking is, especially when you use that term. | 37 |
fomc | 2,006 | Why don't I give an overview? Then Steve can speak a bit about where we think we are. The topic has obviously become of great interest. It's cropping up in any number of places, including the BIS. When we think about it, the first problem we confront is that we were never able in the simpler world of ten years ago or s... | 835 |
fomc | 2,006 | Just to extend Karen's remarks a bit--as Karen suggested, we have for quite a while had a certain amount of difficulty identifying a standard Phillips curve relationship between domestic output gaps and inflation in all foreign economies. We have done research in our division over the past few years, and we actually ha... | 343 |
fomc | 2,006 | Thank you. | 3 |
fomc | 2,006 | President Minehan. | 4 |
fomc | 2,006 | Quickly, just as an extension to President Moskow's question--if you look at the economic projections, particularly for 2007, the staff's forecast is sort of low on GDP, middling to high on core PCE, but right up there over the central tendency on the unemployment rate. I think this comes under the heading of the surpr... | 219 |
fomc | 2,006 | We've had an error in Okun's law in the levels relationship between the output gap and the unemployment rate gap. The predominant explanation for what you're talking about is that we have the relationship between the output gap and the difference between the unemployment rate and the NAIRU coming back into normal align... | 161 |
fomc | 2,006 | And is that what is pulling down inflation? Is that having an effect on your core PCE? | 20 |
fomc | 2,006 | As I mentioned earlier, the predominant thing that's causing core PCE to decelerate next year compared with this year is the flattening out of energy prices. Resource utilization is a tiny influence at this point. | 42 |
fomc | 2,006 | So you're basically agnostic about the output gap--or the lack thereof--and what you see in the current unemployment rate. You don't believe it because it's out of whack with where you think it ought to be vis-a-vis the NAIRU? | 51 |
fomc | 2,006 | I'm not sure I'd use the word "agnostic." We think that both the output gap and the unemployment rate gap are pretty small. Given how flat the Phillips curve is, we think they're very slight influences on the performance of inflation over the remainder of this year and next, and we think other factors are going to loom... | 78 |
fomc | 2,006 | Two other interpretations of the recent readings: One interpretation is that Okun's law is off and we'll get some increase in the unemployment rate. Another possibility is that the NAIRU is lower than we're estimating. In that case there would be no gap in the unemployment rate: 4.7 percent might equal the 4.7 on the n... | 223 |
fomc | 2,006 | Yes. The second one would make inflation a little stickier. | 13 |
fomc | 2,006 | Right. | 2 |
fomc | 2,006 | Well, if we could, I would like to start the economic go-round. If at all possible, I would like to complete that today so everyone could get a chance to speak today. Remember we have a two-handed intervention: If you'd like to make a comment or ask a question, please raise two hands. Otherwise, one hand puts you in th... | 80 |
fomc | 2,006 | Thank you, Mr. Chairman. Economic growth in the Fifth District eased off the throttle a bit since our last meeting. Our June manufacturing survey released yesterday morning continued to show nearly flat activity. Indexes for shipments and new orders were barely positive, essentially unchanged from May, and down from st... | 1,206 |
fomc | 2,006 | President Moskow. | 4 |
fomc | 2,006 | Thank you, Mr. Chairman. Since our last meeting, uncertainty about the outlook for both growth and inflation has increased. Clearly the inflation data are disappointing, but let me first focus on economic growth. Here the key question is how much of the second-quarter weakness is transitory and how much represents a mo... | 1,358 |
fomc | 2,006 | Any comments on GM's brutal outlook? [Laughter] | 12 |
fomc | 2,006 | Well, it's brutal compared with last year at this time because they had an employee-incentive pricing program last year, which they're not going to have this year. It's an interesting situation because they say that Chrysler has announced that they're going to have some higher incentives. I spoke to the CEO of General ... | 118 |
fomc | 2,006 | President Stern. | 3 |
fomc | 2,006 | Thank you, Mr. Chairman. I continue to think the outlook for the national economy is reasonably positive. As best I can judge, housing activity is slowing largely as expected. The pace of increases of home prices is decelerating. Prices may be declining in some markets, but surely if we had put confidence intervals aro... | 741 |
fomc | 2,006 | Thank you. President Fisher. | 6 |
fomc | 2,006 | Well, Mr. Chairman, last time I described the economy from our perspective as a BMW Z4 roadster that just couldn't keep itself from exceeding the speed limit. Based on the series of calls we made in preparation for this meeting and the Beige Book and what we are seeing in our own District, I would say that the real eco... | 1,450 |
fomc | 2,006 | President Fisher, who were the respondents in that survey you were quoting about price changes? | 17 |
fomc | 2,006 | For health care? | 4 |
fomc | 2,006 | No. You were talking about what share of price changes were above 3 percent. | 17 |
fomc | 2,006 | Well, actually we have that on our website, Mr. Chairman. I'd be happy to give you the report. These are the breakdowns of all the different expenditure components within the PCE. | 39 |
fomc | 2,006 | I see. | 3 |
fomc | 2,006 | I'd be happy to provide that analysis. | 8 |
fomc | 2,006 | Thank you. President Pianalto. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Much like the Greenbook, the reports that I hear from my directors and business contacts are consistent with an economy that is expanding, but at a slower pace than earlier this year. Activity related to residential real estate has softened, and I continue to hear from my business contacts that... | 453 |
fomc | 2,006 | Thank you. President Hoenig. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. My view of the outlook has not changed significantly since the last meeting. Generally speaking, I agree that, while we will have continued growth in GDP, we also will experience the beginning of a decline and below-trend growth probably through some of the remainder of this year and into 2007.... | 729 |
fomc | 2,006 | Thank you. President Guynn. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. While recent data show that Sixth District economic activity was solid in the early spring, anecdotal reports for May and June point to some definite deceleration. The deceleration is particularly evident in housing, where an orderly slowing is now noted for the first time in areas outside Flor... | 1,407 |
fomc | 2,006 | Thank you. First Vice President Stone. | 8 |
fomc | 2,006 | Thank you, Mr. Chairman. Economic activity in the Third District is also moderating in the second quarter. Our pattern is similar to that of the nation, but the District had less acceleration in the first quarter and less deceleration in the second quarter. Payroll employment growth in our three states is slowing. The ... | 1,079 |
fomc | 2,006 | Thank you very much. Let's go to President Yellen, and then perhaps we can take a break. | 21 |
fomc | 2,006 | Thank you, Mr. Chairman. The staff presentations make abundantly clear that most of the data we have received since we met in May have been disappointing in one way or another. Recent economic activity appears to have been quite a bit weaker than expected, as exemplified by the Greenbook, which shows a significant down... | 951 |
fomc | 2,006 | Thank you. Why don't we take a coffee break and be back at five after? Thank you very much. | 22 |
fomc | 2,006 | President Minehan. | 4 |
fomc | 2,006 | New England's economy remains in relatively good shape, though not particularly vibrant or reflective of great strength going forward. Employment growth has been positive but slow in comparison to the nation. New England usually has a lower unemployment rate than the nation does, but for the first time in a decade or s... | 1,346 |
fomc | 2,006 | Thank you. President Poole. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Let me outline a few comments from my business contacts first. Wal-Mart--and Richard talked about that a bit--has a substantial piece of its business, but by no means all of it, with lower-income consumers. They are coming in several hundred basis points below plan since Easter, and that's for ... | 1,584 |
fomc | 2,006 | Thank you. Vice Chairman Geithner. Sorry, point of intervention. | 15 |
fomc | 2,006 | Bill, this isn't the way people have been using "pass-through" around here. I've taken "pass-through" to mean an increase in the overall core rate, and I think that's the way everyone else has used it. So the scenario you describe wouldn't result in any pass-through, the way for example President Yellen used the term. ... | 72 |
fomc | 2,006 | Part of what we've been doing is looking at individual cases. Until recently, for example, the passenger airlines were unable to pass through fuel increases, whereas the UPSes and FedExes of the world were able to pass them through. But eventually, the passenger airlines have to pass through because they're unprofitabl... | 74 |
fomc | 2,006 | I understand that, Bill. | 6 |
fomc | 2,006 | We've been using the term as a way of understanding some of the underlying pricing power that firms have. Firms do absorb cost increases in the short run, but they can't absorb them in the long run. So what has to happen is that the secondary effects will show up in the level of core unless we put downward pressure on ... | 98 |
fomc | 2,006 | Vice Chair. | 3 |
fomc | 2,006 | Thank you, Mr. Chairman. I guess I'd say the center of gravity of this discussion is a little stronger than the Greenbook, and I think that's pretty much where we are, too. We expect real GDP growth to follow a path pretty close to potential in the balance of '06 and in '07, and we expect core PCE inflation to moderate... | 1,074 |
fomc | 2,006 | Thank you. Governor Kohn. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Incoming data have tended to confirm to a degree both the downside risks to growth and the upside risks to core inflation that we've been talking about at recent meetings. Higher inflation interacting with policymaker comments on the inflation situation triggered higher expected real interest r... | 1,144 |
fomc | 2,006 | Thank you. Governor Bies. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I continue in my concern, which I expressed at the last meeting, about the recent pickup in inflation, especially given the news that we've had since the last meeting. In the past three months, core CPI prices and core PCE prices have grown, respectively, at 3.8 percent and 3.4 percent, twice t... | 1,093 |
fomc | 2,006 | Thank you. Governor Warsh. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. In terms of my overall comments, I consider my views really in the center of gravity, as the Vice Chairman described it, of the speakers around the table and probably, again, quite a bit more optimistic in terms of GDP growth and perhaps also more concerned about inflation risks than the Greenb... | 1,857 |
fomc | 2,006 | Thank you. Governor Kroszner. | 9 |
fomc | 2,006 | Thank you, Mr. Chairman. At the last meeting I believe Dave Stockton, when he was describing the outlook, said that he was a bit schizophrenic about it. Given the comments of President Moskow, it is clear that he is no longer schizophrenic but that one side has taken over--the dark side. [Laughter] That does not seem t... | 1,419 |
fomc | 2,006 | Thank you. If I could try your patience for a few more minutes at the end of a long afternoon, I'd like to summarize what I've heard today and then just add a few comments of my own. While I'm doing that, Brian, would you distribute table 1? Table 1 in the Bluebook shows the three alternative suggestions for the statem... | 1,674 |
fomc | 2,006 | Good morning, everyone. Mr. Reinhart. | 10 |
fomc | 2,006 | 3 Thank you, Mr. Chairman. As can be seen in the top panel of your first exhibit, market participants marked up their expectations of policy action at this and subsequent FOMC meetings, on net, over the intermeeting period. Apparently, the upward impetus of stronger-than-anticipated releases on inflation and statements... | 1,760 |
fomc | 2,006 | Any questions for Vincent? If not, then we're ready to start the go-round on policy. Governor Kohn. | 23 |
fomc | 2,006 | Thank you, Mr. Chairman. I support the alternative B action of 25 basis points and the language in the statement that was passed out last night. Although output has softened, it's not clear how much and for how long. What is clear is that inflation has been running higher. That's a given. That has been in the data. We'... | 778 |
fomc | 2,006 | Thank you. President Lacker. | 7 |
fomc | 2,006 | As I said yesterday, although the outlook for real growth is noticeably softer than it was at the last meeting, it doesn't seem to me clearly inconsistent with growth around trend going forward. I see the risk of slowing the economy overly much in the near term by increasing real rates as relatively low. The way I look... | 1,048 |
fomc | 2,006 | Thank you. President Poole. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I'll start by saying that I support 25 basis points today. Many of us, including especially the Chairman, helped to shape market expectations that we're going to do that today, and I think not to carry through, given that we shaped market expectations, would be very unfortunate. Before I get to... | 1,200 |
fomc | 2,006 | Thank you. President Lacker and President Poole have made some specific suggestions. If additional speakers want to comment, that would be very helpful. Thank you. President Yellen. | 36 |
fomc | 2,006 | Thank you, Mr. Chairman. Based purely on the economic data, I consider it a close call between raising the funds rate 25 basis points today and pausing. I definitely think that policy should have a firming bias because inflation is too high. However, I do consider policy to be mildly restrictive, and I see a lot of unc... | 925 |
fomc | 2,006 | Thank you. President Fisher. | 6 |
fomc | 2,006 | Mr. Chairman, I'd like to build on the comments by President Lacker, President Poole, and President Yellen. I want to address the language first and the move second. Following President Lacker's lead of referring to last night's dinner, I want to go back to a statement that Governor King made last week--that the Bank o... | 909 |
fomc | 2,006 | Is that two-handed? Vice Chairman Geithner. | 11 |
fomc | 2,006 | Richard, let me just clarify for a second. So you think we should move today but then leave expectations flat, not 50-50 on another increase? | 32 |
fomc | 2,006 | I don't know where we're going to go next. I do believe we should move. I also believe, by the way, that the economy is stronger than the Greenbook says. I made that clear in my statement. I was tempted to suggest adding "somewhat" after the word "moderating," but moderating is moderating. I'm not sure where we go next... | 176 |
fomc | 2,006 | Well, I would have a hard time reconciling Jeff's comments with the ones that followed. In some ways we need to make a choice. It may be true that we're not sure at this point what's going to make sense beyond June, but we need to make a conscious choice about what we want to do with the expectations the market now has... | 127 |
fomc | 2,006 | First of all, we announce a 1/4 point move. Second, we say that we are worried--we use the word "unwelcome." The inflationary pressures, the core inflation pressures, are unwelcome. We state very clearly what our intention is, and we state that we're going to respond to changes. I think our action is then addressed in ... | 131 |
fomc | 2,006 | It sounds as though your objective with those changes would be to push up expectations. | 16 |
fomc | 2,006 | No, I don't want to indicate that we're going to move when we're not sure we're going to move. | 21 |
fomc | 2,006 | I would have read the net effect of your proposed changes as pushing up expectations. Even if we're uncomfortable with how much confidence we have about where we want expectations to be, we need to make a choice about what we want to do. And I would have read the net effect of those changes as pushing up expectations o... | 67 |
fomc | 2,006 | Well, Mr. Chairman, I disagree with the reading. We come from different perspectives. However, we do need to bear in mind that we have this statement, we have your testimony, we have the release of the minutes, and all of those are tools that we should use. Let me just leave it at that. | 65 |
fomc | 2,006 | President Moskow. | 4 |
fomc | 2,006 | Just a factual question. Richard said that the sequence is that you testify first and then the minutes come out. Is that accurate? | 26 |
fomc | 2,006 | The minutes are released three weeks from today. Testimony is tentatively scheduled to be the day before and the same day. Is that right, Brian? | 31 |
fomc | 2,006 | Yes. | 2 |
fomc | 2,006 | So the testimony is Wednesday, and the minutes are released Thursday. The first leg of the testimony is on Wednesday; the second leg is on Thursday. | 30 |
fomc | 2,006 | President Lacker. | 4 |
fomc | 2,006 | I don't disagree with the importance of trying to assess the effect of our statement on the immediate post-statement probability that the market places on our move in August. But I'd just point out, by the time we get to August, the effect of intermeeting news on that assessment will in some sense swamp this. How the m... | 192 |
fomc | 2,006 | The wording in alternative C--which says that, in order to foster price stability, we seek a medium-term decline in core inflation from its recent elevated levels--puts into context, President Lacker, how we're likely to deal with intermeeting data. That's our intention. | 54 |
fomc | 2,006 | President Poole. | 4 |
fomc | 2,006 | On Tim Geithner's point, we come out of this meeting with a clear asymmetry in the sense that what's on the table for August is either zero or up 25. The question is, what kind of probability of up 25 would we like to encourage the markets to think about coming out of the meeting? I said that I would like it to be sort... | 114 |
fomc | 2,006 | Okay. President Stern. | 5 |
fomc | 2,006 | Thank you, Mr. Chairman. I favor the 1/4 point increase in the federal funds rate at this meeting. There are lots of considerations that go into it, but a principal one in my mind is that it's important, and perhaps essential, to take that action to anchor inflation expectations and perhaps even to reduce them a bit. S... | 327 |
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