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fomc
2,007
Thank you. President Plosser.
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Thank you, Mr. Chairman. There has been little change in the District economic conditions since our September meeting. Except for housing, activity is expanding at a modest pace, somewhat below trend. Our business contacts are cautious, generally expecting slow growth to continue over the next quarter, but they remain ...
1,602
fomc
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Thank you. President Rosengren.
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Thank you, Mr. Chairman. The Boston forecast is very close to that of the Greenbook. With the constant federal funds rate assumption, the economy is very close to full employment, and core inflation is close to 2 percent at the end of 2008. Such an outcome is consistent with what I would hope to achieve with appropriat...
690
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2,007
Thank you. President Fisher.
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Thank you, Mr. Chairman. Like the global economy, the Eleventh District is slowing, but relative to the other Districts it remains very strong. Our retail sales improved in September. Nonresidential and commercial construction remains elevated. Service-sector job growth strengthened significantly in September, and our ...
362
fomc
2,007
Let the transcript say "groan." [Laughter]
12
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By that I mean, by the way, that the subprime market is a focus of angst, which it should be, but the ridiculous practice of the suspension of reason in valuing all asset classes, if not over, is in remission. We have a long way to go before full recovery and must acknowledge that shocks regarding access might occur. I...
1,955
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Thank you. Yes, sir, Vice Chairman.
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Are we permitted to question?
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Yes.
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Richard, you described vividly the bunch of forces working on headline inflation. But since you identified yourself as a negative outlier on the inflation forecast, it seems to me your headline forecast is still for significant moderation in headline inflation in '08. Am I wrong in that? At least I infer from this that...
72
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No. But I am talking about a spread being maintained between the two, and I am concerned about it, depending on where we are going to go in terms of our communication exercise, which we will talk about tomorrow. But we don't show as much relief on PCE inflation as the Greenbook indicates nor as the central tendency ind...
74
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Thank you. President Yellen.
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Thank you, Mr. Chairman. Over the past week or so, we have been following the devastating fires in Southern California. They have burned over 500,000 acres, destroyed nearly 2,000 homes, and inflicted seven deaths and sixty injuries. These were large fires, even by California standards, but they were by no means the la...
1,625
fomc
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Thank you. President Pianalto.
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Thank you, Mr. Chairman. Like many others around the table, my report to this Committee in September indicated a sharp deterioration in business confidence. My business contacts were concerned about what may happen. During the intermeeting period I heard less about what may happen and more about what is actually happen...
639
fomc
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Thank you. President Lacker.
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Thank you, Mr. Chairman. Conditions in the Fifth District's housing sector continue to deteriorate. Sales have weakened further across most areas, and starts have pulled back sharply. Inventories are rising in part, we hear, because some residential investors have run short on patience and are listing their properties....
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But not Texas.
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Or California.
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--and we don't appear in Part 2 of the Greenbook--posted notably weaker readings for October. Drilling down into the details, much of the softness can be traced to housing.
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We can't help it if you have no predictive content. [Laughter]
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The Chair is calling for order.
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Conditioning on the Philadelphia index, we actually have marginal predictive value for the national ISMs. But I continue. A modest housing spillover into business investment plans seems to be unfolding as well. In the recent Board-commissioned survey of capital investment plans, our District was among those in which mo...
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fomc
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Thank you. President Lockhart.
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Thank you, Mr. Chairman. As I have noted in the past, the industrial mix in the Sixth District looks a lot like the country as a whole. The regional data and anecdotal information show that, although the Sixth District economy is still expanding, the pace is marginally weaker than it was in September. In earlier meetin...
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Thank you. President Evans.
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Thank you, Mr. Chairman. The Seventh District economy appears to be expanding at a moderate rate, similar to what I reported at our last meeting. As we talked with business contacts, we heard mixed reviews regarding activity across different sectors of the economy. On the downside, everyone in the construction industry...
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Thank you. President Stern.
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Thank you, Mr. Chairman. There really have not been any significant changes in economic conditions or trends in the District. Moderate expansion is continuing. The special survey we did on financial conditions and whether the changes there had affected capital spending plans suggested that plans, at least for firms in ...
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Thank you. President Poole.
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Thank you, Mr. Chairman. I want to concentrate on the outlook for the nonhousing part. I think the housing sector is obviously in miserable condition, and the issue as to where that's going to go really depends on how much of it spreads to other parts of the economy. Now, I have a contact with a large software firm, an...
763
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Thank you. We have been extraordinarily efficient today. Why don't we take a coffee break and come back at 4:30?
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Let's reconvene. Vice Chairman Geithner.
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I just want to start by saying in defense of the Empire State that there is no way--the only way that Richmond could be bigger than New York and Philadelphia is if you don't count the substantial business we have in the manufacturing of financial products.
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It's a lot smaller business than it used to be. [Laughter]
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As the Chairman said at the Economic Club of New York, it is likely to emerge stronger. I think the outlook looks about the way it did in September. Just a few quick points. Financial market conditions are substantially better than during the peak of the panic in mid-August; but the improvement, as many of you said, is...
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Thank you. Governor Kohn.
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Thank you, Mr. Chairman. In broad outline, the situation is evolving as we anticipated in our last meeting. Spending outside of housing has been well maintained. The housing market is very weak. Financial markets have been returning more toward normal functioning, banks have tightened credit terms and standards, and co...
1,131
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Thank you. Governor Warsh.
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Thank you, Mr. Chairman. I thought I'd just talk about four subjects today: first, spend a few more moments on the capital market conditions, which Bill did a great job of summarizing; second, talk about financial intermediaries; and third and fourth, talk briefly about implications for growth and inflation. In terms o...
2,199
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Thank you. Governor Kroszner.
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Thank you very much. I very much agree with Dave's characterization of the Greenbook as a modal forecast, and I think it is an excellent and perfectly reasonable modal forecast. As almost all of us have said, the data are coming in a little stronger. We will have a fair amount of momentum going into the fourth quarter....
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Thank you. Governor Mishkin.
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Thank you, Mr. Chairman. My forecast is actually quite similar to the Greenbook forecast. In terms of inflation, I see a little faster movement back to 2 percent, where I think inflation expectations are grounded, but the difference is very minor. I do think the risks are quite balanced around that. In terms of economi...
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Thank you. Thank you everyone. Let me try to summarize this discussion. It is a little harder than usual. Broadly, the macroeconomic news came in slightly better than expected during the intermeeting period. Housing has been very weak, as expected; but consumption, investment, and net exports were relatively strong in ...
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Good morning, everybody. Let's start with Dave Stockton, who will bring us up to date on the overnight data releases.
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3 We left at your place--and I hope you will find--a table showing the GDP release numbers relative to the Greenbook forecast that we had. I thought I would start out by just walking you through that for a minute and giving my impressions of what its implications are. As you can see, there was an advance estimate of th...
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Any questions for Dave? President Fisher.
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Mr. Chairman, I just wanted to ask--and this is a question based on ignorance--you've talked about nonresidential structures, and you mentioned drilling and mining. One thing that has impressed me in talking to some of the bigger logistics companies--Fluor, Bechtel, Zachry--are the enormous numbers in what I mentioned ...
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Yes, most of that would be part of this nonresidential structure figure. But since we don't know exactly what proprietary information the BEA has, I'm not quite sure what is included in the number. But conceptually, that should be there.
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And the weight of construction and mining is what?
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Drilling and mining in the overall economy is very small.
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Yes, that's what I thought.
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I mean, nonresidential structures contribute about 31/2 percent; drilling and mining I could get for you.
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I think the two combined are something like that.
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Yes, it's a small piece.
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Thank you.
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Other questions for Dave? President Rosengren?
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I had a follow-up question on nonresidential structures. You talked about drilling and mining, and I was wondering about the other parts of commercial real estate. Was anything in there? I don't know if you had a chance to look at it, but the reason I ask is that, if you thought financing was starting to become a probl...
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We don't have the details yet. In fact, a construction-put-in-place release will come out later today and will provide us with a bit more insight into the composition of the non-drilling-and-mining component. So I don't really know what is happening there in terms of this particular figure. In terms of durable goods, g...
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Brian?
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Mr. Chairman, I would just like to take this opportunity to remind the Committee that you will have the opportunity to revise your projections that you submitted a few days ago in light of the information available through the time of this meeting--of course including the data that were released this morning. We would ...
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Thank you. Other questions? If not, Brian?
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4 Thank you, Mr. Chairman. I will be referring to the package labeled "Material for FOMC Briefing on Monetary Policy Alternatives." That package includes two versions of table 1: The first is the version that was discussed in the Bluebook, and the second is a revised version dated October 31. The revised table presents...
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Brian, do I have it correctly that the blue shows the change between the Bluebook and the current version?
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Yes.
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So the only changes from the Bluebook in A-3 and C-3 are that there's a more expansive description of the inflation risks, and in A-4 there is simply the phrase "after this action." Those are the only changes from the Bluebook. Are there any questions for Brian? President Evans.
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Brian, we don't have a long history of announcing the risk assessments contemporaneously with the decision, so I'm curious as to your take on the likely response. In alternative B, section 4, it says that the Committee views the downside risks to economic growth as the greater policy concern, and I think you said that ...
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I'm not sure I could answer that without doing a fair amount of research, President Evans. My sense is that, as I think I indicated in my remarks, for the policy decision today there is effectively 23 basis points or so of easing still built in. So there would be a considerable surprise in that dimension. According to ...
156
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So as I thought about this briefly, it seemed to me as though it's not unusual for us to say that, because of the risks of higher inflation, we don't feel we'd take action in subsequent meetings for quite some time. But when we have had this type of assessment--I think there have been only a couple of opportunities--us...
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I think the market takes the upside risk to inflation as more what central bankers have to say.
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The mantra.
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Right, and I think that the downside risk would be viewed as more a hint of the way that the central bank is leaning. So I don't think they are symmetric.
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Thanks.
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Governor Mishkin.
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I just wanted to ask you for a little more detail about the market's reaction to the GDP numbers and the ADP data. You said that it's the same. Can you be just a little more precise? Is there any movement at all in terms of the assessment of the federal funds rate cut at this meeting?
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A very small one, I think.
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About how much?
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November fed funds futures were up 1 basis point, December was up 2 basis points, January fed funds were up 2 basis points, and then as you go further out they are 4 to 5. So it's fairly small.
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Breakevens were up about 3 basis points across the curve.
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President Fisher.
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I have two questions. One just came to mind. We are talking about very recent futures expectations. In light of what you just discussed, what has been the range in the intermeeting period in terms of the odds of a 25 basis point cut?
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I think it has been as low as 30 and as high as--it's nested, because there is some probability on 50 and some probability on 25. But if you look at the Cleveland Fed, I think it has ranged from about 30 to about 80.
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So it has been all over the lot. My question really is maybe not so much of Brian but just to inform a decision here, or at least to inform an input. There was some discussion yesterday of strong hints about the need to have insurance--that is, insuring against the risk of downside economic growth that might be more dr...
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It starts immediately--small. The mean lag is about four quarters, so you get about half of the effect in the first year and the other half of the effect in the second year; and that, at least according to the models, feeds in relatively smoothly over that period.
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Did it bump up your estimate for the second half of next year in terms of economic growth from where it would have been had we not cut rates 50 basis points?
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Yes.
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Thank you.
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Are there any other questions? President Rosengren.
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Just a follow-up on your comment about thinking about the release and of uncertainty and risks around inflation and unemployment--it looks as though the nomenclature that we've used in the assessment of risks was in part intended to get at the direction of policy in the future. It does seem a little awkward if the lang...
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Well, one point to make is that the histograms aren't in the public release. They won't see those data per se.
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They will be. The histograms will be published--yes?
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Not the asymmetry of the risk, but it will be described.
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Right.
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I think this emphasizes the importance of the point that Brian made about the opportunity everybody has to revisit their submissions, particularly in terms of how they think about the risks to the forecast in the wake of a possible move in monetary policy. We haven't talked about this in much detail before, but if the ...
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Just to follow up on that--we submitted this last Friday, right? I don't know if people will know when we submitted it, but it's not a huge amount of time between when it was submitted and when we are making an announcement. So if there were a larger span of time, I would think that awkwardness wouldn't be as great.
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I think your point about the awkwardness is right.
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President Poole.
4