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fomc | 2,006 | The numbers in Dino's chart are breakevens, so there were no carry adjustments. Therefore they're not the same as the calculations in the Bluebook, which include a lot of adjustments and are implied inflation numbers. These are purely the differences between the nominals and the reals. One reason that we always include... | 122 |
fomc | 2,006 | I understand and appreciate that. Thanks. My impression, however, is that you have something near term going on because of what is expected to happen to the headline CPI over the next couple of months. Then something a couple of years out, not next year but a year or two after that, is pulling down the compensation. Is... | 75 |
fomc | 2,006 | I would not be so bold as to go that far. | 12 |
fomc | 2,006 | Let me see if I can get Vince to be that bold. [Laughter] | 17 |
fomc | 2,006 | Yes. There is something happening at the near end. [Laughter] | 15 |
fomc | 2,006 | That's not very bold, Vince. | 7 |
fomc | 2,006 | I was willing to go that far. [Laughter] | 12 |
fomc | 2,006 | Also, look at the relative movement. The first five years it's moving in a much wider range. The five-year five-year-forward rate has come down a bit but really not a lot. | 38 |
fomc | 2,006 | But the near-term five-year looks as though it changed because of the next couple of months and then after '08 and not much in '07. You're okay with that interpretation? | 36 |
fomc | 2,006 | I'm okay with that interpretation. | 6 |
fomc | 2,006 | Okay. Thank you. | 5 |
fomc | 2,006 | Vince, you gave me a number for two-year breakevens of 2.14 percent carry adjusted. How does that relate to these numbers? | 31 |
fomc | 2,006 | That was the forward rate. | 6 |
fomc | 2,006 | The two-year breakeven rate, carry adjusted? | 11 |
fomc | 2,006 | Right. The numbers in the box are the twelve months ending in October and November, and they're not carry adjusted. They're straight reads from that portion of the differential between the two yield curves. So there are two things going on: the shifting in time and the carry adjustment. | 55 |
fomc | 2,006 | Well, the carry adjustment doesn't affect the October '06 calendar-year spread, nor would it affect the two-year forward rate. | 25 |
fomc | 2,006 | If it was a forward rate, yes. | 9 |
fomc | 2,006 | Are there other questions? Governor Bies. | 9 |
fomc | 2,006 | Can you go back to the GSEs' use of the early return? You said they're using the term fed funds but not the overnight. So who is using the overnight early returns? | 38 |
fomc | 2,006 | That's a great question. It's not clear. It seems to be a wide range of institutions. I don't know that we've seen a distinct pattern yet. Again, the sizes are pretty small as a percentage of the overall market. I'm not quite sure why it's being used or whether the banks are using it. There must be some cash-management... | 134 |
fomc | 2,006 | Well, I'm just glad you're gathering the data. | 10 |
fomc | 2,006 | May I just follow up? Compared with the early return, the regular fed funds loan is a 24-hour loan plus an option to extend it for a few hours. It's an option--you could use it or not, right? So from that point of view, if what we wanted to get a bead on was the risk-free 24-hour rate, then it looks as though the early... | 104 |
fomc | 2,006 | Well, the early return has to be returned early in the morning. Also, we know anecdotally, and the data seem to support it, that most of that trading takes place roughly 24 hours before delivery. Now that's a characterization of a very small segment of the market. To have a true 24-hour market, you would have to presum... | 136 |
fomc | 2,006 | Do you have a question? All right. We need an action to ratify the open market operations. Do I hear a motion? | 27 |
fomc | 2,006 | So moved. | 3 |
fomc | 2,006 | Approved, without objection. Thank you. Let us turn now to the economic situation. Dave? | 19 |
fomc | 2,006 | Thank you, Mr. Chairman. I cannot recall the precise baseball analogy employed by David Wilcox at the last FOMC meeting, but I have a vague recollection he speculated that I was either due for a forecasting hit or due to be hit by the forecast. [Laughter] In any event, since the Greenbook was completed last Wednesday, ... | 3,070 |
fomc | 2,006 | In the international economy, the striking development over the intermeeting period has been the rapid and substantial drop in crude oil prices and in prices for some nonfuel commodities. The spot price of WTI crude reached a recent high of about $77 per barrel on August 7, following news of problems with the BP pipeli... | 1,373 |
fomc | 2,006 | Are there questions? President Fisher. | 7 |
fomc | 2,006 | First, I want to congratulate David on the excellent memo on inflation dynamics, and I hope that we can circulate it more broadly to the academic community so we can enrich that debate. It was a superb paper. Karen, you know how much I appreciate your comments on the inflation dynamics that you're seeing in other count... | 228 |
fomc | 2,006 | To be honest, I don't know of any real data that the staff can bring to bear on this question. We have some data on the trading contracts and who is trading, and to some degree these data may shed light on a measure of how much of the trading is fundamental and how much of the trading is, for want of a better word, spe... | 298 |
fomc | 2,006 | Maybe Dino can add something? | 6 |
fomc | 2,006 | There's probably some short-term effect. I think there may be something to what you suggest, but my own assertion is that it would probably have a short-term effect on prices. Whether that's a matter of days or weeks or maybe longer, it's hard to put a time dimension on it. I was trying to make the point in my remarks,... | 211 |
fomc | 2,006 | Well, again, it's just something I'm interested in. It's not unimportant, but I have a more important question. Karen, I noticed last week that the International Monetary Fund forecasts global economic growth, non-U.S. growth, of around 5 percent. Our number is 31/4 percent. What is the difference between us? If we're ... | 81 |
fomc | 2,006 | Part of the difference is the weighting that they use. First, our number is total foreign, whereas their number is world. However, the U.S. numbers are probably below average. If anything, we should go the other way, although in the past it has worked my way. [Laughter] Second, we use weights based on U.S. export behav... | 411 |
fomc | 2,006 | Thank you. President Poole. | 7 |
fomc | 2,006 | I have an observation and a question. Your outlook for employment is growth at just 25,000 per month. If that's what we're going to see, we're going to have a major communication challenge to explain it because it is going to look and feel like a recession to almost everybody who sees those numbers. However, you don't ... | 231 |
fomc | 2,006 | Viewed from the appropriate perspective, 25,000 per month is not too bad--viewed perhaps from the perspective of the Administration of Millard Fillmore. [Laughter] So I will readily acknowledge that, if we're right about our labor input forecast, there will be some communication difficulties, and there will be maybe ev... | 193 |
fomc | 2,006 | But there's a big difference between 100,000 and a quarter of that number. | 17 |
fomc | 2,006 | I completely agree. As I indicated, this piece of our forecast does make me nervous because we are far out of the consensus, especially in our expectation for the decline in labor force participation. I'm actually a little less nervous than I was a year and a half ago, when we first moved to this change in our forecast... | 387 |
fomc | 2,006 | President Stern. | 3 |
fomc | 2,006 | Thank you, Mr. Chairman. Dave, I'm trying to understand your forecast and its evolution. As I read the Greenbook, at least on the demand side, it seemed to be largely a housing story as you cut through everything. So my question is, If I put myself back in August before I knew that incomes were going to be as high as t... | 185 |
fomc | 2,006 | I would say you have it just about right--somewhere on the order of 1 percent in the second half and something certainly under 2 percent in 2007. Obviously, in putting our forecast together we were contending both with weaker housing and with some of these offsets that we factored in that have provided some cushion to ... | 119 |
fomc | 2,006 | President Moskow. | 4 |
fomc | 2,006 | I wanted to ask you about this "less inflation persistence" alternative scenario, which as you said brings inflation down to 1.6 percent by 2008. As I read the Greenbook and then the alternative simulation memo, I saw two things--(1) less persistence and (2) an expected inflation outcome of 1.6 percent. It seemed as th... | 144 |
fomc | 2,006 | Your 2 percent scenario is close to what we are forecasting in the Greenbook--inflation expectations running more like 2 percent than the 11/2 percent, with less inflation persistence. You are right. We created a scenario in which, if you thought about some of the equation estimates that have been presented, persistenc... | 178 |
fomc | 2,006 | So you assume that there is no inflation persistence and that we just go down to this longer-term average. | 21 |
fomc | 2,006 | Well, by 2008. Some costs of adjustment slow that process, so you don't just jump immediately to the 11/2 percent. | 29 |
fomc | 2,006 | So it is just based on the assumption, and the key is that assumption of 11/2 percent or 2 percent. | 26 |
fomc | 2,006 | It is more than an assumption: It's an assumption that could be defended with some empirical evidence. Again, in some of these inflation persistence regressions in very short sample periods, there is evidence that the persistence has fallen very close to zero. Taken at face value, that could produce an outcome quite si... | 109 |
fomc | 2,006 | Thank you. | 3 |
fomc | 2,006 | President Lacker. | 4 |
fomc | 2,006 | I would like to compliment you, David Stockton, and your staff for inclusion in this meeting's Greenbook, Part 2, on page II-36, of an array of measures of inflation expectations, apparently in response to needling from me. I can assure you that this will have no moral hazard effect, and you will get neither no more no... | 238 |
fomc | 2,006 | Governor Mishkin. | 4 |
fomc | 2,006 | First, on this issue of persistence, I want to mention that I think we should have some caution about interpreting the results. I do not quite know what the word "persistence" means because this is really a very reduced form estimate. A key issue is what mean it is that inflation is reverting to, and that can very much... | 246 |
fomc | 2,006 | I am flattered that you asked, given that I am still trying to figure out what happened in the first quarter of this year. [Laughter] So let me answer your question first and then provide some of the caveats or background. Basically, we do construct something we call a Greenbook extension that goes beyond the current G... | 748 |
fomc | 2,006 | Thank you. | 3 |
fomc | 2,006 | President Minehan. | 4 |
fomc | 2,006 | Thank you very much. Dave, I found your discussion of the averaging to be interesting--that is, the forecast is between the devil and the deep blue sea or, in effect, between recession or much slower growth on the one side and more inflation with perhaps higher growth on the other side. It reflects what I have been goi... | 190 |
fomc | 2,006 | I think the answer to that is probably never in the post-World War II period. We also have not had a rise in the unemployment rate of 1/2 percentage point stretched out over a year, as we have in this forecast, without running into a recession. | 55 |
fomc | 2,006 | That usually happens faster. | 5 |
fomc | 2,006 | From our perspective--I haven't said this in years, so I allow myself this one time--there is more uncertainty at this point. Both tails of the distribution feel wider to me than they have in the past. Now, my having said that, is it impossible to imagine that we could have something that we haven't seen previously--a ... | 221 |
fomc | 2,006 | The behavior of construction that we are projecting is unusual, but the predicate is also unusual in that we did go through a mild recession but with substantially no attenuation in the pace of construction. So it is an unusual path that we followed to get here, and in our baseline forecast, it is an unusual path that ... | 67 |
fomc | 2,006 | It is interesting that, when you plot out all the other major forecasts and you look at the underlying elements of them and you look at GDP, inflation, and so forth, the Greenbook is really an outlier on the low side in terms of growth and the fed funds rate. Maybe you are right. You have been here before as an outlier... | 94 |
fomc | 2,006 | Sometimes right and sometimes wrong. [Laughter] I do have a sense of that. | 18 |
fomc | 2,006 | I figured you might, you know. | 8 |
fomc | 2,006 | Part of the difference stems increasingly from our more pessimistic take on potential output. Many of those outside forecasts have the unemployment rate rising to 5 percent, and we have it rising a bit more. Some of that difference is greater cyclical weakness that I would attribute to the depth of the housing downturn... | 184 |
fomc | 2,006 | One small thing. On the other side of the devil and the deep blue sea, there is such a sharp contraction of residential investment, which lasts basically for a year and a half--the forecast does attenuate the rate of decline into '07, but the contraction lasts pretty much a year and a half from where we are. Could it b... | 123 |
fomc | 2,006 | The answer to that is "yes," and I think there is some risk. One feature of our forecast is the fact that we are not projecting large declines nationwide in house prices. We are expecting a deceleration but not any outright declines. One could imagine that more of the adjustment could take place more quickly by a big d... | 341 |
fomc | 2,006 | I was not really suggesting that there would be major price hits but only that the contraction that you are showing in the near term in residential construction might be enough, given mortgage rates, demographics, and those kinds of thing. | 44 |
fomc | 2,006 | In some sense our forecast is below our models. Our models still say that the fundamentals in terms of cost of capital and income are reasonably supportive of residential investment. We thought we actually created some possibility of upside surprise with our forecast as well and not just downside in the adjustments tha... | 61 |
fomc | 2,006 | That is exactly what I was trying to get at. | 11 |
fomc | 2,006 | If there are no more questions, we're ready for the economic go-around. For the benefit of our new member, the convention is that you raise one hand to be recognized and be put in the queue; if you have a comment or question, raise two hands for an intervention. I've noticed that there have not been a lot of two-handed... | 122 |
fomc | 2,006 | Thank you, Mr. Chairman. I'm going to be quite brief. My contacts in the transportation industry are giving off some very mixed signals. UPS is investing heavily in capacity expansion. They have a problem in expanding capacity because they traditionally do it by buying used passenger aircraft. There are very few of the... | 387 |
fomc | 2,006 | Thank you. President Moskow. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. My contact calls and director reports this round point to moderate growth in overall economic activity. Both nationally and in our District, housing is weak. Domestic auto production is slowing from last year, but activity in other sectors remains on a solid footing. Starting on the downside, o... | 1,187 |
fomc | 2,006 | President Moskow, going back to the automobiles, you mentioned the retooling. The Greenbook has reduced production plans for the second half. Is that what you heard? | 35 |
fomc | 2,006 | Yes, and Chrysler announced just yesterday that they, too, are reducing production in the second half. What intrigued me about GM, which has lowered production plans, is the changeover for light trucks. They are producing these trucks in five plants, and that is the largest number of plants that produce one type of veh... | 150 |
fomc | 2,006 | Thank you. President Fisher. | 6 |
fomc | 2,006 | Mr. Chairman, the Eleventh District economy remains strong and continues to grow at a stronger pace than the rest of the country, with employment growth continuing at roughly twice the nation's pace. Incidentally, home sales have not turned down in our District, so we haven't been singing yet what we call the "coastal ... | 1,523 |
fomc | 2,006 | You mentioned a third-quarter estimate of about 3 percent? | 12 |
fomc | 2,006 | That was the UPS estimate, yes, sir. | 10 |
fomc | 2,006 | I am just curious. The third quarter will be over in ten days. Given the data that we have already seen, what would you estimate is the range of standard deviation around the current running estimate? If you are looking at the third quarter, which is over shortly, we have seen at most two-thirds of the data we are goin... | 88 |
fomc | 2,006 | It is still vague. | 5 |
fomc | 2,006 | Still pretty large. [Laughter] | 8 |
fomc | 2,006 | I want to say something on the order of 3/4 percentage point. Just the revisions in the data are not too different from that. | 29 |
fomc | 2,006 | Mr. Chairman, if I may, again, this is just one source of data. They happen to be in a business that is, I think, particularly interesting. In preparation for the last meeting, they were talking about a number closer to 3 percent than the original estimate before the revision, and they proved to be quite accurate. But ... | 127 |
fomc | 2,006 | Okay. Thank you. President Yellen. | 9 |
fomc | 2,006 | Thank you, Mr. Chairman. Since our last meeting, the data bearing on the near-term economic outlook suggest both slower economic growth and a bit less core price inflation going forward. In terms of economic activity, the recent news has been uniformly negative, resulting in a significant downward revision to growth in... | 1,076 |
fomc | 2,006 | Thank you. President Minehan. | 7 |
fomc | 2,006 | Thank you very much, Mr. Chairman. New England continues to grow modestly, though recent data suggest that some caution is warranted. District employment growth remains slower than that of the nation. Most states in the region are back to their January '01 levels of employment; but the largest states, Massachusetts and... | 1,942 |
fomc | 2,006 | Thank you. President Lacker. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. The Fifth District's economy has grown at a somewhat faster pace in recent weeks, reflecting a solid uptick in manufacturing. Preliminary results from our September survey are showing increases in all manufacturing measures, with a particularly strong performance of shipments and new orders. Th... | 861 |
fomc | 2,006 | Thank you. President Plosser. | 8 |
fomc | 2,006 | Thank you, Chairman Bernanke. Overall, economic activity continues to expand in the Third District. The consensus in the regional business community is for moderate growth in the months ahead, but some sentiment has turned more cautious in the intermeeting period. We have seen a slowdown in regional manufacturing activ... | 2,659 |
fomc | 2,006 | Thank you. President Hoenig. | 7 |
fomc | 2,006 | Mr. Chairman, I'd characterize the Tenth District's economy as quite healthy right now. As you know, the Tenth District has benefited perhaps disproportionately from the rise in energy prices over the past few years, and this is providing considerable stimulus to the local and state economies in the District. We are al... | 782 |
fomc | 2,006 | Thank you. President Pianalto. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Since our last meeting, I made a special effort to talk with my directors and business contacts about two topics--developments in housing markets and inflation. My District has been growing at a slower pace than most other parts of the country; consequently, housing prices in the District never... | 1,155 |
fomc | 2,006 | Thank you, President Pianalto, for the new leading indicator of religious statues. [Laughter] I recently gave a speech in South Carolina, where they always have an invocation, and the pastor called for God's blessing on monetary and credit policy. [Laughter] President Guynn. | 57 |
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