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fomc | 2,007 | Mr. Chairman. I just wanted to thank Mike, in particular, for that excellent presentation on the international dimension of this. It was sterling, or euro, or whatever the expression would be in terms of its excellence. I have a tutorial question about the export figures. I assume services are not included in core expo... | 68 |
fomc | 2,007 | No, that is just goods. | 7 |
fomc | 2,007 | Are our service exports increasing more rapidly than our non-service exports? Do you know? Would they be a possible source of explanation for the improved trade balance? | 31 |
fomc | 2,007 | They are a possible source. They were my fourth factor, if I had gone on longer. [Laughter] They were neck and neck with the oil imports in terms of their contribution to the improved outlook for trade. | 44 |
fomc | 2,007 | Well, thank you. That was an excellent presentation. | 11 |
fomc | 2,007 | President Hoenig. | 4 |
fomc | 2,007 | Just a question about scale--regarding exhibit 8, serious mortgage delinquency rates--when you refer to adjustable rates going to almost 12 percent of loans, is that of adjustable-rate loans? What is the total dollar value the 10 percent is against? | 53 |
fomc | 2,007 | The serious delinquency rate is for the pool of adjustable-rate subprime loans, and they represent about 9 percent of the outstanding mortgages. | 28 |
fomc | 2,007 | Okay--and the total outstanding mortgages are what dollar amount? | 12 |
fomc | 2,007 | There is $10 trillion in mortgages outstanding. | 9 |
fomc | 2,007 | That is what I thought. I just wanted to make sure. Thank you. | 16 |
fomc | 2,007 | But to make sure that is right, the red lines are subprime? | 15 |
fomc | 2,007 | The red lines are subprime. | 7 |
fomc | 2,007 | Subprime are? | 4 |
fomc | 2,007 | Subprime adjustable-rate loans are about 9 percent of outstandings, and subprime fixed loans are another 5 percent of outstandings. That would be 9 percent of the $10 trillion in total mortgages. | 45 |
fomc | 2,007 | Although the percentages are by number of mortgages rather than by value, I think. | 16 |
fomc | 2,007 | By dollar it is very similar. | 7 |
fomc | 2,007 | Are there other questions? President Moskow. | 9 |
fomc | 2,007 | Also, on exhibit 8, the net worth chart in the top left-hand corner--I thought I heard you say that this was high by historical standards. So there are two things here--the stock market has been strong, and then housing prices have been very weak. I assume if you run this out into another year, the line is going to kee... | 102 |
fomc | 2,007 | If we had started this series in the early '90s, this would be the high. We have the stock market bubble of 2000 in here, and it has come off, but it is 51/2. Even at the end of the projection period, it is 51/2 times disposable income. That is historically high. Before '96, it would have been about 31/2 or 4. | 87 |
fomc | 2,007 | We do indeed forecast it to continue to decline over the next year or so, in large measure because, as David shows in his chart, we still think this house price adjustment has to proceed further before we get into a better equilibrium. Our assumption on the stock price, of course, is pretty neutral because we have it g... | 92 |
fomc | 2,007 | On a longer-term trend basis, where would you expect it to stabilize or to level out? | 19 |
fomc | 2,007 | Take this for what it is worth, which isn't a whole lot. [Laughter] Thank you. It drops just a bit; it is between 51/2 and 51/4 over the longer haul and just gradually declines back in that direction. | 52 |
fomc | 2,007 | President Hoenig, I think I interrupted you. I'm sorry. | 13 |
fomc | 2,007 | This is the number of loans--then do you have any idea what the percentage of the dollar amount of loans is in delinquency? | 27 |
fomc | 2,007 | We think there is probably $900 billion to $1 trillion in adjustable-rate subprime mortgages outstanding. | 20 |
fomc | 2,007 | So about the same. Okay. | 7 |
fomc | 2,007 | President Plosser. | 5 |
fomc | 2,007 | I wasn't sure I heard correctly. What was the average ratio of wealth to disposable income over the '90s roughly? | 24 |
fomc | 2,007 | The number I recall is 4.6 as the long-run average since the '80s. President Stern. | 23 |
fomc | 2,007 | I want to go back to the surprise in net exports once again. I don't quite remember the argument, but it seems to me we used to worry a lot about small foreign elasticities of demand for U.S. goods and services when the dollar declined or when income growth differentials changed. Has what we have seen lately affected y... | 70 |
fomc | 2,007 | I would say it hasn't affected our view in the sense that we haven't changed the elasticities that we are using on the basis of this one year's observation, but it points in the right direction. I mean, we are getting a little bit more "umph" from foreign growth than we thought before. Whether it is going to be a one-t... | 126 |
fomc | 2,007 | We have updated the elasticities since ten years ago. When you first heard us nattering on about the unsustainability of the U.S. current account situation, we had perhaps a more extreme view of those elasticities. If you drop out the 1970s and you restrict your estimates to a more recent period, you tend to get elasti... | 116 |
fomc | 2,007 | Thanks. | 2 |
fomc | 2,007 | Governor Kroszner. | 6 |
fomc | 2,007 | In exhibit 9, the average initial rate on the stock of mortgages that you are looking at for resetting over the next couple of years is about 7 1/3 percent. What is roughly the current rate for subprime fixed-rate loans? | 50 |
fomc | 2,007 | It is around 9 percent. If you get on the Internet and try to find a subprime fixed-rate loan, it would be about that. We can't find an official series, but roughly 9. | 42 |
fomc | 2,007 | So they are facing a 21/2 percent payment shock if they stick with the mortgage. But if they were able to switch to a fixed-rate product, it is about 11/2 percent. | 41 |
fomc | 2,007 | That's right, right now. | 6 |
fomc | 2,007 | Thank you. | 3 |
fomc | 2,007 | If there are no other questions, Vincent, could I call on you to talk about the economic projections? | 21 |
fomc | 2,007 | 3 Sure. Thank you, Mr. Chairman. As was evident in the survey responses summarized in the memo of June 15 on your attitudes toward the economic projections, there seems to be broad agreement among you on the key features of the process. Where there was not, including about sharing forecasts, the specification of the mo... | 1,490 |
fomc | 2,007 | Thank you, Vincent. Thanks for reminding us that this projection counts in some sense, right? [Laughter] Also, I think it is very useful for us to have the discipline of thinking about how our projections fit together. Are there questions for Vincent? If not, then we can begin our economic go-round. Who would like to g... | 75 |
fomc | 2,007 | Thank you, Mr. Chairman. Data relating to both economic activity and inflation during the intermeeting period have been encouraging. Economic indicators have strengthened considerably, and recent readings on core inflation have been quite tame. Although a portion of the recent deceleration of core prices likely reflect... | 1,270 |
fomc | 2,007 | Thank you. President Moskow. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Conditions in the Seventh District have changed little since my last report. Overall activity in the District is lagging the nation, mainly because of the continued difficulties of what we now call the Detroit Three, formerly known as the Big Three, [laughter] and their suppliers. But other sec... | 971 |
fomc | 2,007 | Thank you. President Lacker. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. The Fifth District's economy has picked up since the last meeting. Retail sales rose briskly in June following several months of flatness, and shopper traffic increased more broadly as well. Of particular interest, building supply and furniture retailers report better sales. Big-ticket sales re... | 706 |
fomc | 2,007 | Thank you. President Fisher. | 6 |
fomc | 2,007 | Mr. Chairman, for the sake of consistency, I will refer to my report at the last two meetings on what I call the Goldilocks porridge classification system. I reported last that the international economy was hot, and it remains so as we saw in the excellent slide presentation. I reported that the domestic economy was co... | 1,534 |
fomc | 2,007 | Thank you. President Stern. | 6 |
fomc | 2,007 | Thank you, Mr. Chairman. Regarding the national economy and real growth, it seems to me that recent developments are unfolding to a considerable extent largely as anticipated. Growth was positive but subdued over the four quarters ending in the first quarter of this year. It apparently snapped back discernibly in the c... | 638 |
fomc | 2,007 | Thank you. President Minehan. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. The pace of growth in New England, at least as measured by employment, remains below that of the nation. Indeed, since the trough of the last recession, New England's jobs have grown at less than half the pace of the nation as a whole. Some of this is the traditionally slower pace of job format... | 1,603 |
fomc | 2,007 | Thank you. President Hoenig. | 7 |
fomc | 2,007 | Thank you. I will spend just a couple of minutes extra on the District this time because, generally speaking, our District economy continues to perform very well despite the weakness in the housing sector. Energy and agriculture remain very strong, and manufacturing remains generally strong although we have seen some l... | 1,026 |
fomc | 2,007 | Thank you. It is about 4:20. Why don't we take a twenty-minute coffee break and then resume. | 24 |
fomc | 2,007 | If we could resume. President Pianalto. | 9 |
fomc | 2,007 | Thank you, Mr. Chairman. News from the Fourth District is little changed from my last report. The District economy continues to be weighed down by weakness in the housing market, and there is general consensus among my contacts that the housing sector has not yet seen bottom. To date, adverse spillovers from housing to... | 342 |
fomc | 2,007 | If this were the Australian Reserve Bank, it would be okay. [Laughter] | 17 |
fomc | 2,007 | I also extend my heartfelt congratulations to the Spurs on their fourth and final NBA championship. [Laughter] Now, turning to inflation, I am hearing reports of upward price pressures across a handful of industrial commodities, and notably for metals. But wage pressures remain modest. Nevertheless, for the first time ... | 408 |
fomc | 2,007 | Thank you. President Poole. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Let me talk first about some of the anecdotal reports. A contact with a large software company suggested that the IT industry is doing fine. Labor is very tight because technical people are in such scarce supply. This company is expanding development facilities in China and India. They are not ... | 1,003 |
fomc | 2,007 | Thank you. President Lockhart. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I would like to speak earlier next time, so I don't have to give credit to so many of the previous speakers--[laughter] including President Poole, who really said a lot of what I have to say. There wasn't much change in the Sixth District economic picture during the intermeeting period, particu... | 726 |
fomc | 2,007 | Thank you. President Plosser. | 8 |
fomc | 2,007 | Thank you, Mr. Chairman. Since our last meeting, the news in the Third District economy has been mixed but, on balance, slightly more positive than the previous report. The District continues to grow at a moderate pace, and we expect that pace to continue. The bright spot since our last meeting is a rebound in regional... | 2,555 |
fomc | 2,007 | Thank you. Vice Chairman Geithner. | 9 |
fomc | 2,007 | Thank you, Mr. Chairman. The outlook looks a little better, I think. The United States looks okay, and the world looks very strong. Housing here seems as though it will get worse before it gets better, but the rest of the economy seems to be doing reasonably well--with output and investment spending perhaps a bit firme... | 1,278 |
fomc | 2,007 | Thank you. Governor Kohn. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. My projection was closely in line with that of the Greenbook, modestly below-trend growth for a few quarters, held down by a prolonged weakness in housing. As that drag abates, the economy picks up to potential and is held back from overshooting that potential by various factors, including the ... | 1,481 |
fomc | 2,007 | Thank you. Governor Warsh. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Regarding overall economic growth, my own macroeconomic views are not inconsistent with the central tendency of the projections that were pulled together for this meeting. I think the staff and the participants around the table deserve significant credit for being stubborn about the moderate-gr... | 1,717 |
fomc | 2,007 | Thank you. Governor Kroszner. | 9 |
fomc | 2,007 | Thank you very much. The last time we met, there seemed to be a bit of increased uncertainty about a potential downdraft on economic growth, and now some of that concern about that downturn seems to be no longer there. Some intermeeting data have come in a little more on the upside, and obviously the markets have chang... | 2,046 |
fomc | 2,007 | Thank you. Governor Mishkin. | 7 |
fomc | 2,007 | Thank you. My view of what has been happening in the economy is that we have been basically going through a rebalancing. We had a sector that was clearly bubble-like with excessive spending, and now we are getting the retrenchment, which is taking a bit longer than we expected. But the good news is that we are going th... | 796 |
fomc | 2,007 | Thank you, and thanks to everyone. Let me try to give a quick summary, and if I misrepresent you, please let me know. Participants' expectations for growth were varied, but most people expect to see strengthening over the remainder of this year and into 2008 and 2009. The principal source of downside risk is housing, w... | 510 |
fomc | 2,007 | Is President Fisher a source of inflation? [Laughter] | 12 |
fomc | 2,007 | Only rhetorical inflation. | 4 |
fomc | 2,007 | All in all, there still seems to be general agreement that the risks to inflation remain to the upside and remain the predominant concern. Is that a reasonable summary? Are there any comments? Let me present just a few essentially random thoughts at this point. First of all, from my perspective, the biggest puzzle abou... | 1,379 |
fomc | 2,007 | 4 Thank you, Mr. Chairman. Two personal notes to start: First, I am the last person between you and British food, which means that I'm not sure whether it is in your interest for me to speak quickly or slowly. [Laughter] Second, this week marks the first anniversary of the Committee's last policy action--the quarter-po... | 2,401 |
fomc | 2,007 | Are there any questions for Vincent? All right. If there are no questions, then we'll adjourn. We'll see you at the dinner, and we will begin at 9:00 a.m. | 40 |
fomc | 2,007 | Good morning, everyone. The GDP figures came out this morning. David, would you like to comment? | 21 |
fomc | 2,007 | Thank you, Mr. Chairman. The BEA published this morning their so-called final estimate of GDP for the first quarter. Top line came in slightly lower than we had been expecting in the Greenbook--0.7 percent compared with the 1 percent that we had been expecting. There were small misses in a smattering of categories, inc... | 196 |
fomc | 2,007 | Core PCE. | 4 |
fomc | 2,007 | Excuse me. The core PCE price index for the first quarter was revised up, exactly as we had been expecting on the basis of the PPI revision. Thank you. | 36 |
fomc | 2,007 | Are there any questions? | 5 |
fomc | 2,007 | May I ask, Bill, whether there has been any reaction in financial markets to this? | 18 |
fomc | 2,007 | I think that people are taking this in stride. The first quarter is old news. | 17 |
fomc | 2,007 | So, on your estimate, what we will be seeing tomorrow when we get the details on prices will be in line with what you have been expecting? There was nothing here to make you change your view of that? MR.WILCOX. We don't know the details of what we will get tomorrow, but there is nothing here to condition our expectatio... | 78 |
fomc | 2,007 | Okay. We are well advanced in our deliberations here. We heard from Vincent yesterday on the action in the statement, and so we are prepared for the go-round. Governor Kohn. | 38 |
fomc | 2,007 | Thank you, Mr. Chairman. I think what I heard yesterday was consistent with what I was thinking myself. We are in a pretty good spot, macroeconomically and policywise. We have moderate growth; low core inflation, which is not rising and could possibly be falling, suggesting an underlying balance of demand and potential... | 512 |
fomc | 2,007 | Thank you. President Fisher. | 6 |
fomc | 2,007 | Mr. Chairman, I agree with Governor Kohn. I am in favor of alternative B, of holding the rate where it is. The point that he just made may cover a suggestion I had because I was thinking about what I heard yesterday at the table. I heard two things. One, in our discussion of inflation, I heard some concern about core i... | 271 |
fomc | 2,007 | Thank you. President Lacker. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Before I talk about policy, let me just note that it has been a tremendous pleasure being a colleague of President Minehan over the years and being an immediate neighbor of hers--[laughter]--at Federal Open Market Committee meetings. For one thing, she has done a great job as buffer between me ... | 81 |
fomc | 2,007 | Not always easy, I might add. [Laughter] | 12 |
fomc | 2,007 | For another, I have gotten an up-close view of some really dazzling jewelry. [Laughter] | 20 |
fomc | 2,007 | Please take that out of the transcript. [Laughter] | 12 |
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