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fomc | 2,006 | Thank you, Mr. Chairman. I have two questions that are sort of related. The first question has to do with the acceleration in core PCE prices that we saw earlier this year and were all obviously very concerned about. One rationale we've offered in trying to understand that acceleration was the pass-through effects from... | 332 |
fomc | 2,006 | If I can answer that last question first--there isn't any consequence for the CPI. They actually measure motor vehicles differently in the PPI and the CPI. In the PPI, when they get to October, they start measuring the prices of just the 2007 model years, whereas in the CPI they are trying to phase in new models as peo... | 220 |
fomc | 2,006 | That was really my question--whether it contaminated anything else. | 12 |
fomc | 2,006 | On the first question--we think the slowdown in energy prices, the flattening out of energy prices, the actual decline of energy prices is probably going to be worth about 1/4 percentage point of deceleration in core prices going forward. | 49 |
fomc | 2,006 | That doesn't show up in your forecast. | 8 |
fomc | 2,006 | Well, it is in the forecast. It's just not so easy to see on a revision-by-revision basis because we're also being surprised by the tightness of the overall labor market, by the decline of the dollar, and by somewhat higher import prices. So there have been other offsetting factors that are masking the underlying effec... | 116 |
fomc | 2,006 | I was looking at the change from the August forecast of core inflation, which was before we had the big decline, and it really hasn't changed much. That's why I couldn't see why it hadn't had that much of an effect. | 45 |
fomc | 2,006 | President Fisher. | 3 |
fomc | 2,006 | David, with all the problems that labor indicators provide us, one striking thing in the recent report is that the service sector is what pulled the fat out of the fire. If my memory is correct, 83 percent of our employment is now in the service sector, over 70 percent of our output, and perhaps a greater percentage of... | 217 |
fomc | 2,006 | I don't know of any particular research that bears exactly on that question about whether or not we can identify cyclical service industries. For the most part, your basic point is well taken, which is that the service sector is larger, more stable, less interest sensitive, less prone to the kind of inventory backups a... | 180 |
fomc | 2,006 | Could I ask just a quick second question, which is totally different? I think I read a statement that we were getting diminishing returns on the previous tightening initiatives we took, but I may have read that incorrectly. Is that correct--now that we have a sense of the lag that we talked about before? Are we running... | 81 |
fomc | 2,006 | I don't think you read that in anything that we wrote. [Laughter] That's not the way that we would be thinking about things--that somehow that there are diminishing returns to the potency of monetary policy. | 42 |
fomc | 2,006 | So they are still having effect. Thank you. | 10 |
fomc | 2,006 | Vice Chairman Geithner. | 6 |
fomc | 2,006 | We're trying to decompose changes in forward nominal interest rates and figure out what are risk premiums, term premiums, real rates, and so forth. Have you looked at what's happening globally with the same basic objective and tried to decompose changes in forward rates or real rates outside the United States into thei... | 62 |
fomc | 2,006 | There has been some work on that. It looks as though in a couple of foreign industrial countries that there is some evidence of declines in term premiums. It's very difficult to determine why those term premiums have been falling or, more generally, why long-term bond yields in the foreign countries have been going dow... | 117 |
fomc | 2,006 | Are there other questions? If not, we're ready for our economic go-round. As always, two-handed interventions are available. President Yellen. | 29 |
fomc | 2,006 | Thank you, Mr. Chairman. I have to admit that this time around I found it pretty challenging to read the tea leaves on economic activity. The data are providing distinctly contradictory signals. For example, several key indicators of aggregate spending have come in below expectations, and the Greenbook now sees real GD... | 1,426 |
fomc | 2,006 | President Yellen, did I understand you to say that the GDI being higher than the GDP increases both actual output and potential output and so should be read as mostly a neutral distinction? | 37 |
fomc | 2,006 | I read that as suggesting that the growth of actual output might be understated. I suppose one could also contemplate the possibility that potential might be understated but I was hypothesizing that actual output is understated, and hence the gap between actual and potential may be larger than the Greenbook assumes. | 57 |
fomc | 2,006 | Thank you. President Moskow. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Business activity in the Seventh District appears to be expanding at a slightly slower pace than the last time we met. But most of my contacts were still positive about the outlook, and when we put together our forecast for the national economy, we did not make any large changes to the projecti... | 1,157 |
fomc | 2,006 | Thank you. President Fisher. | 6 |
fomc | 2,006 | Mr. Chairman, at the last meeting I provided anecdotal evidence, as I always do after my survey of CEOs and CFOs, of a slowdown for some sectors. I spoke of housing, which I've been a bit more concerned about to date than even our models have indicated. I referred to slowing trucking activity for the Christmas season, ... | 1,654 |
fomc | 2,006 | On that note, President Minehan. [Laughter] | 12 |
fomc | 2,006 | It's not fair. [Laughter] Well, to the extent that this sounds like North Dakota, let me just proceed. Despite data from the housing markets that suggest that New England is suffering the real estate slowdown perhaps more than the rest of the nation--at least in terms of falling house prices--the overall regional econo... | 1,293 |
fomc | 2,006 | Thank you. President Lacker. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Economic activity continued to expand moderately in our District in November. Manufacturing shipments and new orders bucked the national trend and rebounded last month following an October dip. Revenues and hiring slowed a bit in the service sector but continued to expand moderately. Retail was... | 985 |
fomc | 2,006 | Thank you. President Pianalto. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. My outlook for the economy hasn't changed much since our last meeting, but I have become more concerned about the risk to the outlook for real growth. So in my comments this morning, I'll explain why my risk assessment has changed. The homebuilders with whom I spoke over the past several weeks ... | 867 |
fomc | 2,006 | Thank you. President Poole. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I have to begin by saying that Janet Yellen, without doubt, has provided the most brilliant exposition of "on the one hand and on the other hand." [Laughter] | 43 |
fomc | 2,006 | Thank you. [Laughter] | 7 |
fomc | 2,006 | I think I may be able to clarify the Wal-Mart outlook a bit. There's been a lot of publicity that Wal-Mart reported November year-over-year same store sales to be, I think, 0.1 percentage point down. The Wal-Mart take on the situation is that the problem is about 75 percent in the forecast that they had and about 25 pe... | 969 |
fomc | 2,006 | Thank you. | 3 |
fomc | 2,006 | Mr. Chairman. | 4 |
fomc | 2,006 | President Lacker. | 4 |
fomc | 2,006 | Bill, you talked about reconciling bond and equity markets based on a view that inflation pressures will ease and growth will be good. When you say "inflation pressures will ease," do you mean that inflation will come down or that we will not be motivated to raise real rates? | 57 |
fomc | 2,006 | One possibility would be to say that the markets might believe that we will be perfectly okay with inflation continuing to run 21/4, 21/2, or something like that. That is a possibility. But the way I would look at it is that the market would probably believe that we would be just holding the fed funds rate target const... | 170 |
fomc | 2,006 | President Plosser. | 5 |
fomc | 2,006 | Thank you, Mr. Chairman. The economic picture in our region has changed little since our last meeting. The coincident indicators in our Business Outlook Survey suggested that economic activity continues to expand at a moderate pace in each of our three states, and the business contacts expect that pace to continue. I'm... | 2,076 |
fomc | 2,006 | Thank you. President Hoenig. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Overall, the Tenth District economy continues to expand at a moderate pace. Activity has slowed somewhat, but our region is still probably doing a little better than the nation as a whole. One area in which we may be doing a bit better is housing, even though we have slowed just as everyone els... | 806 |
fomc | 2,006 | Thank you. First Vice President Barron. | 9 |
fomc | 2,006 | Thank you, Mr. Chairman. Over the intermeeting period, the Sixth District's economic activity largely reflected the trends in the nation as a whole. But the magnitude has been amplified by the region's relatively large exposure to housing-related activities. Specifically, while Florida continues to bear the brunt of th... | 1,078 |
fomc | 2,006 | Thank you. President Stern. | 6 |
fomc | 2,006 | Thank you, Mr. Chairman. Two or three developments in the District economy are worth noting, and they seem consistent, by the way, with what's happening at the national level. First, overall, the labor markets, excluding construction, appear to be continuing to improve. Hiring is expanding, and the availability of jobs... | 578 |
fomc | 2,006 | Thank you. Vice Chairman Geithner. | 9 |
fomc | 2,006 | Thank you, Mr. Chairman. Our forecast hasn't changed much since the last meeting. We still expect growth to move back to potential in the first half of next year and to stay in the vicinity of potential, which we think is around 3 percent, over the forecast period. We expect inflation, as measured by the core PCE index... | 1,138 |
fomc | 2,006 | Thank you. Governor Kohn. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. As many of you have remarked, the incoming data on spending at least have been consistent with our basic outlook for economic activity. Weakness in housing and autos will hold activity to below the growth rate of potential for a few quarters but with limited spillover to other forms of househol... | 1,029 |
fomc | 2,006 | Thank you. Governor Bies. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I thought I'd start today talking a bit about housing markets and the condition of banks right now. As many of you have noticed, some of us are optimistic that we may be approaching a bottom in the housing market. I think we'll see that bottom in housing sales long before we see it on the const... | 1,220 |
fomc | 2,006 | Thank you. Governor Warsh. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Let me confine my remarks to a couple of discussions of the economy that bolster the themes that several of you have noted. At the outset, I'll say that I continue to be more concerned with the level of inflation and our progress regarding it than I am with growth. The economy appears to be on ... | 2,163 |
fomc | 2,006 | Governor Warsh, I'm going to put you on the spot. You and many others have talked about the liquidity in the market, and I want to understand better what that means. First, liquidity can refer to the availability of buyers and sellers; clearly, that has increased over the past years as we've had hedge funds and other a... | 254 |
fomc | 2,006 | It's a tough question, and I'll try to take it in turn, which is that most of the liquidity phenomenon that I describe here and that we see in the U.S. markets, we describe in the FOMC as a U.S. phenomenon, but it's really a global phenomenon. So as we think about what this liquidity tells us about interest rates, it's... | 334 |
fomc | 2,006 | Thank you. With apologies to Governors Kroszner and Mishkin, I think it's time to take coffee break. [Laughter] Let's take a fifteen-minute break, and then we'll come back. | 41 |
fomc | 2,006 | Let's reassemble. Governor Kroszner, if you're ready. | 14 |
fomc | 2,006 | Last time several of us noted that there would be an avalanche of data between the last meeting and this one [laughter]--two employment reports, two rounds of ISM, GDP, ECI, compensation revisions, all of that. But it seems from the discussion here that we've actually gotten very little new information, with one except... | 1,767 |
fomc | 2,006 | Governor Mishkin. | 4 |
fomc | 2,006 | Thanks, Mr. Chairman. I see the economy evolving very much along the lines of the past couple of Greenbooks, particularly the ones since I've been here. The staff is to be very highly commended: They pointed out that outcomes were going to be weaker than other forecasters thought, and they really did get it right. Now,... | 632 |
fomc | 2,006 | Thank you. Let me just summarize and add a few comments. As Governor Kroszner mentioned, we had an avalanche of data, and the snowman is still standing in the same place as before. [Laughter] Most people still see a two-track or bimodal economy. In the first part of the economy--the goods economy, housing and manufactu... | 1,928 |
fomc | 2,006 | 2 Thanks, Mr. Chairman. I will be referring to the material that was distributed labeled "Material for FOMC Briefing on Monetary Policy Alternatives." Financial market conditions eased noticeably on balance over the intermeeting period. As shown in the top panels of exhibit 1, ten-year nominal Treasury yields dropped 3... | 1,925 |
fomc | 2,006 | Are there questions for Brian? President Lacker. | 10 |
fomc | 2,006 | Brian, you reported the decline in measured term premiums, and yet in the panel next to that you noted that measures of volatility don't seem to have fallen. The term premium is, of course, a combination of volatility in the securities return and covariance with--let's call it "marginal utility" just for the sake of ar... | 88 |
fomc | 2,006 | No, they really don't. The three-factor term structure model doesn't provide a breakdown; it doesn't allow us to distinguish between changes in risk perceptions and risk appetite. So there's no evidence from that score. You may be seeing some reflection of what's shown in the bottom left-hand panel with that pronounced... | 122 |
fomc | 2,006 | My second question is about the statement. Many market participants, as you noted, expect very little change in the tenor of the statement's characterization of the real economy. Do you believe that the markets would view the way alternative B was originally crafted as expressing more concern than the median analyst ab... | 78 |
fomc | 2,006 | In that respect I actually don't see much distinction between 4 and 5. On the whole, my guess would be that it is not far from what the median market participant expects. Dino may have a comment on this. | 45 |
fomc | 2,006 | I think that's right. I think the median view would be that they're looking for some acknowledgement of the soft data that were mentioned earlier. | 27 |
fomc | 2,006 | Vice Chairman Geithner. | 6 |
fomc | 2,006 | I have two questions about the prisms you gave us for looking at the current stance of policy and the likely path of policy. Brian, in your comments on exhibit 3 you said that alternative A, as your last bullet says, "is consistent with estimated policy rules." Can you just elaborate on that? My quick reading of it sug... | 133 |
fomc | 2,006 | Yes. In that comment I was referring specifically to our estimated policy rules, which are empirical renditions of the Committee's past behavior. If you have the Bluebook handy, in chart 7, right at the bottom under "Memo," two policy rules are referenced--the estimated outcome-based rule and the estimated forecast-bas... | 200 |
fomc | 2,006 | My second question is about the Bluebook chart 5, which shows a range of alternative estimates of the equilibrium real federal funds rate over time. I want to come back to the Chairman's discussion about the saving glut and what it might mean for the way we think about monetary policy today. The bottom panel of that ch... | 172 |
fomc | 2,006 | I think the basic answer to that is "yes," but there are perhaps things going on here at a cyclical level and at a more structural level. Chairman Bernanke's hypothesis was more of a structural or a secular explanation of interest rates. What we're seeing in the upper panel of chart 5 obviously has important cyclical c... | 91 |
fomc | 2,006 | Wouldn't you have expected to have come back to a point that was below past estimates of equilibrium over time? I know I'm confused about this. [Laughter] | 33 |
fomc | 2,006 | I think there's another offsetting thing that you can see in this chart, and that is trend productivity growth. If you look at the red band, you can see that it rose quite a bit in the late 1990s, when trend productivity growth rose. Now we're below the late '90s with approximately the same trend productivity growth bu... | 88 |
fomc | 2,006 | One way to look at this, I guess, is to say that we just don't know much about what equilibrium is. [Laughter] It tends to move around a lot, and the bands are kind of fat. | 44 |
fomc | 2,006 | They're inferred from a very simple model--very limited three-equation, five-equation type estimates. We have one that we derived from something as complicated as FRB/US, but the rest are just our looking at real interest rates and output gaps and trying to line them up. Thus many of the more structural explanations ar... | 73 |
fomc | 2,006 | One point to make in that regard is that, to the extent you take a very highly articulated model like FRB/US as a reasonable representation of the way the world works, it tells you that equilibrium real interest rates are determined by a broad range of factors. There is no real presumption that there is constant level ... | 78 |
fomc | 2,006 | I have one final question in another direction. Would you expect to see significant changes in measured term premiums over short periods? You gave us a bunch of reasons that you don't have much confidence in the model estimates, but would you ever want to attribute much to what looked like significant moves in short pe... | 60 |
fomc | 2,006 | Unless you have some reason for thinking that market participants' uncertainty about future inflation pressures, spending, profits, and so forth or risk aversion tends to change rapidly, I would say "no." | 39 |
fomc | 2,006 | President Lacker has a question. | 7 |
fomc | 2,006 | My recollection of the time series plots of these term-premium estimates from the original research is that they were fairly choppy on a short-term basis. So this doesn't seem wild and crazy. | 39 |
fomc | 2,006 | President Minehan. | 4 |
fomc | 2,006 | May I ask a question about language that applies to two alternatives, or do you want to wait on that? | 22 |
fomc | 2,006 | Go ahead. | 3 |
fomc | 2,006 | Both alternative A and alternative B talk in section 2 about something happening that's greater than anticipated. I really have some trouble with the words "than anticipated"--anticipated by whom and about what? I recognize that the distinction between A and B and C is that C doesn't emphasize as much a diminution in t... | 114 |
fomc | 2,006 | You're correct. Let me just put that on the table for people to comment on. | 17 |
fomc | 2,006 | You could take out "than anticipated," and if you're looking at A, you could take out "more" because I think it says exactly what you want to do. It puts a little more emphasis on growth and on problems affecting growth, but it doesn't raise issues about who anticipated what and when. | 60 |
fomc | 2,006 | That's a perfectly fine point. I also just note that in exhibit 4, alternative B, the word "pace" appears in both phrases. If we decide on that particular language, I have a suggested rework that gets rid of "pace" and has the same meaning. But your substantive point about whether or not to include "than anticipated" s... | 80 |
fomc | 2,006 | Great. That's where I wanted to put it. Thank you. | 13 |
fomc | 2,006 | Are there other questions? President Pianalto. | 9 |
fomc | 2,006 | Brian, in your comments you say obviously that dealers expect no change in the stance of policy today. Most expect little change to the wording. Yet their path for the fed funds rate is below what we see in the Greenbook. What information in your view would markets need to move their path closer to the Greenbook's? Wha... | 71 |
fomc | 2,006 | Well, I assume just generally stronger real-side data--as the Committee has been discussing today, some firmer indication perhaps that the downturn in housing is leveling out and that overall the economy is growing at a solid pace. | 44 |
fomc | 2,006 | As you point out, their economic forecasts are already much higher than ours. The Greenbook is one of the lowest in terms of economic outlook, even those among the Blue Chip forecasters. | 38 |
fomc | 2,006 | Some disconnect between the private forecasters, the economists, and the bond markets is evident. Even in their assumptions it's quite explicit. So I don't think those two things are necessarily inconsistent. Are we ready to begin our policy round? President Hoenig. | 50 |
fomc | 2,006 | My preference is, as we look at the outlook, to maintain the federal funds rate at 51/4 percent. In my judgment, Mr. Chairman, our current policy stance is slightly or moderately restrictive and will lead to moderation in inflation going forward, though slowly I admit. But I will also say, as indicated in my earlier st... | 254 |
fomc | 2,006 | President Hoenig, do you prefer exhibit 4 or exhibit 5? | 15 |
fomc | 2,006 | You know, it's a tough call, but I think I'd go with exhibit 5 language. | 19 |
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