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fomc | 2,007 | Thank you. President Poole has a comment. | 10 |
fomc | 2,007 | Given that I was so frugal--I think I was frugal--in my initial comments, I'd like to provide some very quick additional comments. The biggest mistakes that central banks have made historically have been when they've allowed price stability to slip away and it has had very, very large effects on employment. If you have... | 571 |
fomc | 2,007 | Thank you. Governor Warsh. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I thought I would just state a few points as sort of a predicate before diving into the questions. First, I probably have a bit of a financial market bias on this topic, and I would begin by saying that the financial markets rightly or wrongly already believe that we have some form of inflation... | 1,709 |
fomc | 2,007 | Thank you. President Moskow. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I have two introductory comments. One, thanks to the staff--that was a great job, as others have said. Second, Mr. Chairman, I am assuming that you're going to seek a consensus of the participants on this, not just of the voting members. | 60 |
fomc | 2,007 | Yes. | 2 |
fomc | 2,007 | I guess I have the advantage or maybe the disadvantage of going near the end. I think hearing the discussion is an advantage, though. I'm reminded of the famous term that Alan Greenspan used--"conundrum"--and I view this as a kind of conundrum. We have the dual mandate in our legislation of price stability and maximum ... | 1,243 |
fomc | 2,007 | Thank you. [Laughter] | 7 |
fomc | 2,007 | Today. [Laughter] On the experiment, it is worthwhile; I think that we should proceed with it. It will provide us with more useful information. We have some specific suggestions on the details of it, but we can give those later. | 50 |
fomc | 2,007 | Thank you very much. Governor Kroszner. | 11 |
fomc | 2,007 | Thank you. Since lunch is looming, I'll try to be as brief as possible. The key to what I hope we will be trying to achieve is better credibility to make monetary policy more effective and to fulfill our dual mandate better. I very much agree with President Poole's comments that it's valuable to make sure that we have ... | 953 |
fomc | 2,007 | Thank you. Governor Mishkin, you had a two-hander? | 14 |
fomc | 2,007 | Yes. Actually it's an issue concerning some information that perhaps Karen can provide for us. The ECB has used "less than 2 percent but close," and in a way I find that very attractive. But I do worry. I know the academics have been quite critical of that articulation of a target as being a little waffley. I don't kno... | 130 |
fomc | 2,007 | Well, it is complex. I would say "yes." There are three things. First, people find the statement Rube Goldberg-ish. It just seems odd to say that it is less than 2 percent but close somehow, right? If you mean 1.9 percent, why don't you say 1.9? Certainly criticism is directed there especially. Second, the fact is that... | 157 |
fomc | 2,007 | Initially they began with below 2 percent and they clarified below, but not too far below; then that created at least a sense of a floor. | 30 |
fomc | 2,007 | An issue that arose for the ECB, too, in this regard is that they had a whole big review--similar to the one we're doing--and then they came up with something that was considered Rube Goldberg-ish. | 44 |
fomc | 2,007 | The policy people endorsed it even though all the papers that they had prepared for the conference didn't. | 19 |
fomc | 2,007 | It just is a concern that we want to learn from other people's experiences, and on this particular issue there has been some experience that has not always been favorable. Even though in one sense I actually liked that approach and thought about it, I was a little concerned about exactly the issues that Karen has menti... | 64 |
fomc | 2,007 | President Lacker. | 4 |
fomc | 2,007 | This is sort of obvious, but the further out you go, the more uncertainty there is about the purchasing power of the euro. What would you tell someone to assume for twenty years' worth of euro inflation? If you can't give them a number, that's intensifying the uncertainty in a seemingly needless way. | 61 |
fomc | 2,007 | I guess they would think that they had put on a ceiling and that it answers that question at least as well as any other statement that has a number attached because they have a ceiling. The fact that they have not hit it is a different question, but they put it in place. | 57 |
fomc | 2,007 | A little information here: A chart in the right side of the blue folder from Karen shows that, in consensus economics expectations for ten years out, inflation has been pretty firmly anchored at about 1.9 for the past three years. | 47 |
fomc | 2,007 | For the euro. | 4 |
fomc | 2,007 | For the euro area, without any real fluctuation. In fact, there is less fluctuation there than in the U.K. consensus economics and about the same fluctuation in their ten-year swap rate as in the United Kingdom. | 46 |
fomc | 2,007 | That's great. I'm not surprised that there is some mean to the financial markets' estimate of long-run inflation there. That's consistent with the ECB's view about how they conduct policy--I mean, this is more of an optics and communication issue. If that's how they're conducting policy, why not say 1.9? | 64 |
fomc | 2,007 | Vice Chairman, you have the floor absolutely. [Laughter] | 13 |
fomc | 2,007 | Thank you, Mr. Chairman. I think three things about our current regime are worth reflecting on as to whether we can improve them. They are, first, the lack of clarity that exists about how we define our objective; second, the relative lack of texture that we provide about the outlook and the risks that underpin our dec... | 1,844 |
fomc | 2,007 | Certainly. Thank you very much. Let me thank the Committee for yet another very thoughtful and helpful discussion. I appreciate the time you've spent preparing for this. Thanks also to the staff. I thought the background materials were excellent. I'm not going to say much. I'm just going to make a couple of comments. I... | 771 |
fomc | 2,007 | Good morning, everybody. We start with the Desk operations, Bill. | 14 |
fomc | 2,007 | 1 Thank you, Mr. Chairman. I'll be referring to the handout with the blue on the front. The market turbulence that began in earnest on February 27 is now a distant memory. Risk appetites have recovered, volatility in the fixed income and equity markets has declined, and the U.S. equity market has climbed to a new high.... | 1,958 |
fomc | 2,007 | Okay. Questions? President Fisher. | 7 |
fomc | 2,007 | I have two questions. On page 2, when you talk about subprime paper, do we have any data that can tell us anything about the stress in the alt-A markets specifically? | 38 |
fomc | 2,007 | There is definitely some spillover into alt-A, but alt-A delinquencies and losses are a fraction of subprime. If you compare the characteristics of alt-A loans with those of subprime loans, you'll see the same easing of underwriting standards in the alt-A market that occurred in the subprime market and almost identical... | 125 |
fomc | 2,007 | My second question regards S&P earnings. Is there a way to split out what comes from the rest of the world and what comes from the United States? I know it would be analytically difficult, but I'm just wondering if there is a disparity between the two in what drops to the bottom line. | 60 |
fomc | 2,007 | I'm sure there is a disparity between the two. I do not know of any way to break that out clearly. One factor--the weakness of the dollar versus the euro--is definitely helping to boost corporate earnings. A disproportionate share of U.S. foreign activity is Europe-oriented, so it's a bigger share than would be suggest... | 108 |
fomc | 2,007 | Thanks, Bill. | 4 |
fomc | 2,007 | Are there other questions? We need a vote to ratify domestic open operations. | 16 |
fomc | 2,007 | So moved. | 3 |
fomc | 2,007 | Passed without objection. We also need a vote on the swap lines. | 14 |
fomc | 2,007 | So moved. | 3 |
fomc | 2,007 | We've discussed this in the past. The swap lines serve partly a diplomatic function, and they have some relevance to potential financial crises, if they're needed for dollar liquidity either in Canada or in Mexico. However, I will bring these up with Secretary Paulson at some point just to make sure that the Treasury i... | 104 |
fomc | 2,007 | Thank you, Mr. Chairman. In this forecast round, you, as policymakers, were faced with an identification problem similar to that which we, as econometricians, so often confront. Although the Greenbook forecast is essentially the same as it was in March, several observationally equivalent hypotheses could explain this o... | 2,484 |
fomc | 2,007 | The basic message from the rest of the global economy is that economic conditions are favorable and appear likely to remain so through the end of next year. Although small variations in the basically optimistic outlook are present, real GDP growth in the foreign economies seems poised to continue at an average annual r... | 1,128 |
fomc | 2,007 | Thank you. Are there questions? President Moskow. | 11 |
fomc | 2,007 | Dave, you talked about the slowdown in structural productivity in your report. You have marked down your estimates for structural multifactor productivity for the second half of this decade from what you had before. Even before that you had a decline from the first half of the decade to the second half. So I wonder if ... | 70 |
fomc | 2,007 | Certainly. As we have reported at recent meetings, we have been surprised by the extent to which actual productivity has slowed over the past six to eight months. We had been resisting a downward revision in our estimate of structural productivity on the expectation that we would imminently see a significant weakening ... | 375 |
fomc | 2,007 | Some work has been done on trying to isolate whether these changes are in the high-tech area or in areas across the economy in which people are not getting as much improvement in the use of new high technology as they did in the past. Can you shed any light on that question? | 56 |
fomc | 2,007 | I'll let Bill jump in, if he has any particular observations on that. I don't think technology alone explains the surprise that we've had in the past year or so on productivity--I don't know of any work that we or others have done that would allow us to parse out how much of that surprise might have been related to thi... | 235 |
fomc | 2,007 | Okay. President Poole. | 6 |
fomc | 2,007 | Thank you, Mr. Chairman. In commenting on President Moskow's question you mentioned the disconnect between employment and GDP, particularly in the construction area. Somehow the lag argument doesn't ring very true to me on that one, given that residential construction has been down for such a long time and I think a lo... | 91 |
fomc | 2,007 | I will just raise the white flag. [Laughter] If you thought about an area in which there would be fewer costs to shedding and acquiring labor, construction would probably be right at the top of your list. But the empirical evidence suggests otherwise. Again, this is something we have just started working on, so I don't... | 200 |
fomc | 2,007 | Is the GDP number on residential construction put together primarily as a distributed lag off starts? | 17 |
fomc | 2,007 | There are several major components. Indeed, one--the residential construction component--is based on a lag off starts, both a relatively short lag off single-family starts and a longer lag off multifamily starts. Another significant component is additions and alterations, which is based on survey information. This comp... | 131 |
fomc | 2,007 | President Moskow, a two-handed intervention. | 9 |
fomc | 2,007 | I have just a footnote. A large group of people working this industry are self-employed. I do not know to what extent you could separate that out; but it, too, is an important piece of this puzzle. | 45 |
fomc | 2,007 | Yes, that certainly could be a factor as well. | 11 |
fomc | 2,007 | President Stern. | 3 |
fomc | 2,007 | One of the surprises noted in the Greenbook, Dave, was ECI and compensation in the first quarter--the increases were not as large as you had anticipated. I know that those numbers bounce around a lot quarter to quarter, but my impression has been that overall they have been coming in somewhat lower than anticipated for... | 100 |
fomc | 2,007 | Let me answer the first-quarter surprise and then the longer-term surprise that you are pointing to. We were, indeed, very surprised by the small increase in ECI hourly compensation in the first quarter. But almost all of that surprise occurred in one component--a huge drop in contributions to pension plans. We have ch... | 312 |
fomc | 2,007 | We have an intervention from President Minehan. | 9 |
fomc | 2,007 | Not an intervention. A question. | 7 |
fomc | 2,007 | Oh, I'm sorry. Let me go then to President Plosser. | 15 |
fomc | 2,007 | Thank you, Mr. Chairman. I just want to follow up a bit on the tail end of the conversation with President Poole about residential investment. One of the big changes in your forecast was the additional markdown of pushing the recovery in residential investment out further and sustaining a more negative effect on your f... | 155 |
fomc | 2,007 | It came principally from the fact that we have been gauging our construction forecast from an expectation that builders would try to adjust production to reduce the months' supply of unsold homes down toward a more normal level over the next couple of years. Between the March forecast and this forecast we were surprise... | 274 |
fomc | 2,007 | Is the overhang measured as the absolute number of unsold homes or the ratio of unsold homes to current monthly sales? | 25 |
fomc | 2,007 | Well, you could do it either way. We did not take, for example, the last month's incredible weakness in new-home sales at face value. We take a six-month moving average, calculate what we think the months' supply is based on that, and have months' supply come back to a more normal level over time. So it is like an inve... | 112 |
fomc | 2,007 | Then what drives the demand for new homes? If it is an inventory-sales ratio, you were also making some implicit statement about the forecast of demand. | 30 |
fomc | 2,007 | Absolutely. We have a very mild upturn in home sales as overall activity and income recover from this soft period, but we do not get the normal kind of pop in housing. What is unusual, in part, about this cycle is that, in past cycles, monetary policy was partly responsible for driving the decline of demand and then a ... | 171 |
fomc | 2,007 | President Minehan. | 4 |
fomc | 2,007 | This works as an intervention as well as a question because it is exactly along the lines of President Plosser's questions. First, the assumption about inventory and where is normal--the past ten years through the housing boom have created a normality, if you will, of very low inventories, as compared with the longer-r... | 363 |
fomc | 2,007 | I certainly would not say that. [Laughter] I am glad to hear that the builders you talked to are not giving clear answers to that question because we have been talking to them as well and have not received clear answers. I think this is an open and unresolved question of the forecast. We are predicating our forecast or... | 296 |
fomc | 2,007 | Anecdotally, we were getting some feedback--in New England anyway--that things are starting to heat up. That's only in relative terms, on the high-end side anyway. But who knows? | 42 |
fomc | 2,007 | Are there other questions? We had, as you know, a trial run in which participants submitted some projections. In the interest of illuminating the conversation that we will have in a moment, I thought I'd ask Vincent just to say a few words about those projections. | 52 |
fomc | 2,007 | 2 Yesterday afternoon, we posted to the secure document server a summary of the economic projections that you submitted. The material should be in front of you with a cover memo from Debbie Danker. I will use the table directly behind that cover to review briefly the key features of those projections, and then I will o... | 701 |
fomc | 2,007 | Thank you, Vincent. I have penciled in some time after the policy decision for discussion and comments about the process and for the head of the subcommittee to talk a little about what we will be doing in our communication discussions going forward. So in the interest of time, I would ask people who have questions for... | 107 |
fomc | 2,007 | Thank you, Mr. Chairman. My assessment of the economic outlook and the risks to it is largely unchanged since our last meeting. The data since that meeting have been mixed. On the one hand, the very sluggish real GDP growth in the first quarter gives me pause concerning potential downside risks. Much of the first-quart... | 1,273 |
fomc | 2,007 | Thank you. President Moskow. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Conditions in the Seventh District have improved modestly since my last report. The overall pace of business activity is still rather restrained, but we have seen some pickup in our manufacturing sector. The key issues regarding the national outlook are the same as the ones the last time we met... | 812 |
fomc | 2,007 | Thank you. President Fisher. | 6 |
fomc | 2,007 | Mr. Chairman, last time I reported a sense that the international economy was hot, that our domestic economy was cold, and that the regional economy of the Eleventh District was just about right. I concluded my comments by saying that we were in treacherous waters in terms of the U.S. economy, navigating between the Sc... | 1,226 |
fomc | 2,007 | Thank you. President Poole. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. The anecdotal reports that I have accumulated since we last met are almost--I guess I should eliminate "almost"--are unambiguously on the soft side. I emphasize "soft," which I think is a better word than "weak," except perhaps with my trucking industry contact, who says that volume in both Mar... | 1,006 |
fomc | 2,007 | Thank you. President Minehan. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Conditions in New England seem broadly supportive of the continued expansion of the region at about the pace of the nation as a whole, perhaps because the pace of national activity has slowed somewhat and so the region seems to be lagging less, though I do think there is a bit of a brighter ton... | 1,485 |
fomc | 2,007 | Thank you. President Lacker. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Fifth District economic activity continues to be mixed. Our manufacturing indicators continued to drift lower in the past few weeks, apparently diverging from the national trend. This may be because furniture and textiles are particularly weak, and these industries are a significantly greater s... | 256 |
fomc | 2,007 | If anyone is interested, please see me. [Laughter] | 13 |
fomc | 2,007 | Commercial real estate activity generally remains solid, although some observers expressed concern about the sustainability of the quite strong pace of office construction in Northern Virginia. Our survey measures of manufacturing-price trends seem to have moderated since the beginning of the year, consistent with slug... | 769 |
fomc | 2,007 | Thank you. President Pianalto. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. The economy from the perspective of the Fourth District isn't materially different from the way I heard Dave describe national conditions. Manufacturers in the District generally report modest but steady growth. In particular, metals producers and their suppliers report strong orders and produc... | 855 |
fomc | 2,007 | Thank you. President Plosser. | 8 |
fomc | 2,007 | Thank you, Mr. Chairman. The near-term outlook for the Third District is moderate growth going forward. The major source of the strength in the District continues to be employment growth, and nonresidential construction is fairly stable and modestly healthy. However, manufacturing continues to be sluggish and residenti... | 1,555 |
fomc | 2,007 | Thank you. President Hoenig. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I gave a fairly detailed summary of the District's economy last time, and it hasn't changed a great deal since then. So I'll be fairly brief. The labor markets in the region remain fairly tight; they have not loosened at all since our last meeting. Our manufacturing sector continues to show str... | 250 |
fomc | 2,007 | Thank you. President Stern. | 6 |
fomc | 2,007 | Thank you, Mr. Chairman. My outlook for the economy, which is essentially for sustained growth near trend and for a modest diminution of core inflation over time, hasn't changed appreciably. To be sure, I have marked down my forecast for this year, largely in recognition of reality--that is, the weak first quarter, and... | 510 |
fomc | 2,007 | Thank you for the arithmetic. [Laughter] | 10 |
fomc | 2,007 | Sometimes the obvious escapes me. [Laughter] | 10 |
fomc | 2,007 | President Lockhart. | 4 |
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