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fomc | 2,007 | President Evans. | 3 |
fomc | 2,007 | Thanks. Dave, I have two questions, I suppose. The first one is that the Greenbook GDP forecast has come down a good bit since October. At the same time, the Greenbook-consistent short-run equilibrium real funds rate was revised down 3/4 percentage point. How much independent information is there between these two obse... | 242 |
fomc | 2,007 | In response to your first question about whether there is independent information in that estimate of the equilibrium funds rate for the Greenbook-consistent measure, the answer is that there is no independent information. It's just a transformation of the revision in the GDP outlook into interest rate space. Now, obvi... | 464 |
fomc | 2,007 | Thank you. | 3 |
fomc | 2,007 | President Poole. | 4 |
fomc | 2,007 | Dave, I want to lump together all the various forms of financial distress here--the mortgage market, auto loans, credit card loans, and maybe even business failures. If my memory serves correctly (and it may well not), if we look at the history of business cycle fluctuations, all those different forms of financial dist... | 139 |
fomc | 2,007 | I don't actually know in terms of the lag between financial stress and activity. They look very contemporaneous in many cases, and in some cases, obviously, they are past leading indicators of economic activity, such as the Stock-Watson index, which ultimately didn't work all that great, but for a while it looked as th... | 98 |
fomc | 2,007 | I'm talking particularly about the delinquencies, foreclosures, and business failures because I think that they usually occur on the way down during the contraction phase of the business cycle and ordinarily those measures look their best close to a business cycle peak. That's what I remember, but I haven't gone back a... | 112 |
fomc | 2,007 | This is obviously a situation in which, in some sense, the financial stress is the shock to the system rather than the endogenous response to some other shock, either an aggressive tightening of policy or some other type of aggregate demand shock. So in that sense this particular configuration, I think, sort of fits wi... | 157 |
fomc | 2,007 | President Stern. | 3 |
fomc | 2,007 | Dave, I'm having difficulty reconciling the employment and hours data for the current quarter with your forecast of no growth whatsoever. It seems to me that, even if domestic final demand doesn't grow or grows little, we still have inventories and exports that could take up whatever output turns out to be, and we don'... | 124 |
fomc | 2,007 | In the forecast, in fact, we do square the labor market with our forecast of weak GDP with basically flat labor productivity. Now, that's coming on the heels of a quarter in which we had a 6 percent increase in nonfarm business labor productivity. That's a huge gap, and I don't think in some sense that the level of pro... | 290 |
fomc | 2,007 | Yes, just to echo what Dave said, we have very little hard data so far, essentially no hard data for net exports for Q4. We will be receiving the October trade data later this week. So at that point we'll start getting a bit more insight into it. That said, we see the contribution from net exports falling off from a su... | 120 |
fomc | 2,007 | President Plosser. | 5 |
fomc | 2,007 | Thank you, Mr. Chairman. I have sort of a longer-run question that I'd like to pose. I was looking at the alternative scenarios in the Greenbook, and one of the things that I was looking at was the funds rate path that was described as the market-based forecast for the funds rate. It drops almost 150 basis points, or 1... | 227 |
fomc | 2,007 | I don't think you'd need to look much farther than the horizon that we're showing here to see that, in the context of the staff's view about activity, that path for the fed funds rate would probably not be sustainable because in some sense our IS curve is considerably stronger than the market's currently. If it makes y... | 140 |
fomc | 2,007 | I appreciate that. That would be very helpful to put in some perspective what tradeoff in the costs we might see. Thank you. | 27 |
fomc | 2,007 | We should make some progress there. | 7 |
fomc | 2,007 | Vice Chairman Geithner. | 6 |
fomc | 2,007 | Thank you. My first question is an extension of President Evans's question. Dave, there are two things to your monetary policy assumption in the Greenbook. One is that you lowered the path 50 basis points over the forecast period, but the way you did it was sort of interesting. You did 25 now, and you did the rest just... | 101 |
fomc | 2,007 | Yes. In some sense that reduction in the middle of 2009 goes back to President Plosser's point. We're trying to get on track so that when we actually show the extended Greenbook, we have been following, roughly speaking, the optimal control simulation on a 13/4 percent inflation target. The 25 basis points up front is ... | 253 |
fomc | 2,007 | May I ask one follow-up question? In the note for the Board that you circulated on Monday, Dave, you said that the magnitude of the credit crunch you're contemplating is roughly comparable to the unusual weakness of private spending seen during the headwinds episode of the early 1990s. So I was curious. It is sort of i... | 209 |
fomc | 2,007 | So the headwinds of the 1990-91 period--that was a calibration we used for the "credit crunch" scenario in the Greenbook. | 31 |
fomc | 2,007 | Oh, it's just the alternative scenario. I misunderstood. I'm sorry. | 14 |
fomc | 2,007 | In our baseline forecast, we don't have what I would call a real credit crunch. We have some tightening of terms and standards in a period of financial stress that we think will depress spending. But if you're really thinking that we are on the verge of something that looks more like the 1990-91 period, then I think th... | 168 |
fomc | 2,007 | Other questions? President Evans. | 6 |
fomc | 2,007 | As I was looking at the alternative simulations and the credit crunch scenario and trying to make sense of what financial markets are thinking about in terms of the expected fed funds rate path, it seems as though you need that credit crunch scenario to get to that type of path, and that's not where you are. Then there... | 99 |
fomc | 2,007 | Well, I think, as we showed in the alternative scenarios, something like either the credit crunch or the greater housing correction scenarios--in the real world obviously wouldn't necessarily be shocks that would be independent of each other--but either one of those two scenarios is constructed to produce something tha... | 75 |
fomc | 2,007 | All right. President Hoenig. | 7 |
fomc | 2,007 | David, in listening to this, I have a question. As you are looking at and projecting forward, we're talking about a fed funds rate path that comes down, and yet we've talked a great deal about inflation rising temporarily in some views. The question I have is, Does it give you pause? How do you analyze the risk that yo... | 110 |
fomc | 2,007 | Obviously in our baseline forecast we don't really have a pickup of inflation, even headline inflation, beyond the very near term. So we do think that, in the next quarter or two, we're going to be looking at some pretty large headline numbers that will be reflecting the jump in energy prices and some lingering increas... | 65 |
fomc | 2,007 | Right, and you're saying the slowdown in the economy makes that temporary? | 14 |
fomc | 2,007 | The slowdown in the economy helps in the sense that we do think opening up an output gap is going to limit and eventually bring down some of those inflation pressures. In terms of the risks surrounding the forecast, I think an important element in the baseline forecast is that taking on futures markets for both energy ... | 270 |
fomc | 2,007 | Thank you. | 3 |
fomc | 2,007 | Okay. Let's begin our go-round. President Yellen. | 12 |
fomc | 2,007 | Thank you, Mr. Chairman. At the time of our last meeting, I held out hope that the financial turmoil would gradually ebb and the economy might escape without serious damage. Subsequent developments have severely shaken that belief. The bad news since our last meeting has grown steadier and louder, as strains in financi... | 1,400 |
fomc | 2,007 | Thank you. President Rosengren. | 8 |
fomc | 2,007 | Thank you, Mr. Chairman. I think I took the same pessimism pill as President Yellen this morning. The Greenbook makes very somber reading, and I would make several observations about the forecast it provides. First, Greenbook forecasts of two successive quarters of growth below 1 percent are quite rare, and often in th... | 794 |
fomc | 2,007 | Thank you. President Poole. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Just before the meeting I learned something about how we select the order. There are a bunch of us sitting with Debbie, and most people seem to want to go toward the end. Debbie apparently has been in touch with too many econometricians because she said it is "overdetermined." [Laughter] Anyway... | 683 |
fomc | 2,007 | Talk for yourself, Bill. [Laughter] | 10 |
fomc | 2,007 | I bought my GPS a long time ago, and I don't play computer games. But at any rate, flat panel TVs, a lot of stuff like that, suggest that many households are not on the edge of being highly stressed. So I don't know where to come out on this. I guess that my outlook has more variance to it than usual, and it seems to m... | 113 |
fomc | 2,007 | Is the sale of a used truck to Russia an export or a capital inflow? [Laughter] Think about that one. | 26 |
fomc | 2,007 | Well, it is not current production, so it is not an export. | 15 |
fomc | 2,007 | No, I understand. Let's see. President Lacker. | 12 |
fomc | 2,007 | Thank you, Mr. Chairman. Economic conditions in the Fifth District appear to be generally sound but with some notable areas of weakness. Our survey readings on the services firms indicate continued moderate growth in November, and our index of manufacturing activity gained a few points following a sharp decline in Octo... | 1,104 |
fomc | 2,007 | Thank you. President Evans. | 6 |
fomc | 2,007 | Thank you, Mr. Chairman. Coming out of our October meeting, I expected a period of subpar growth stretching into the middle of 2008. Since I was anticipating some soft data, it was not obvious to me that the outlook had worsened until later in the intermeeting period. A lot of the data that we have cited are financial ... | 1,346 |
fomc | 2,007 | Thank you. President Stern. | 6 |
fomc | 2,007 | Thank you, Mr. Chairman. It probably goes without saying that I think the main development since the last FOMC meting has been the renewed deterioration in some of the financial markets. In the absence of that--that is, had financial market conditions either stabilized or continued to improve as they had from the Septe... | 556 |
fomc | 2,007 | Thank you. President Pianalto. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. The conversations that I have had with my business contacts indicate that business conditions in our region have clearly softened since the last meeting and perhaps even more than what is reflected in the Beige Book report that we prepared just a few weeks ago. A sense of pessimism about the ec... | 520 |
fomc | 2,007 | Thank you. President Lockhart. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I think President Stern framed it well in bringing focus to the effect on our thinking that the financial markets are having. As many have said, the central question is not whether the economy is softening but whether it is softening beyond the range that underpinned the policy decision in Octo... | 1,177 |
fomc | 2,007 | Thank you. President Plosser. | 8 |
fomc | 2,007 | Thank you, Mr. Chairman. There has been little change in the economic conditions in our District since the October meeting. Except for housing activity, manufacturing and other businesses are expanding at a modest pace, somewhat below trend. Our business contacts are a little less optimistic about growth in the near te... | 2,394 |
fomc | 2,007 | Thank you. President Hoenig. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I'll start on the local level. Overall our District economy continues to perform generally well, with ongoing weakness in the housing sector being offset by strength in agriculture, energy, and manufacturing. We have seen some slowing in employment growth over the past few months, but this appe... | 1,063 |
fomc | 2,007 | Thank you. President Fisher. | 6 |
fomc | 2,007 | Well, Mr. Chairman, having listened to various views starting with President Yellen, on the one end, and President Plosser, on the other, and President Hoenig on inflation, I was thinking that Edward R. Murrow said that anybody who isn't confused really doesn't understand the situation. [Laughter] I'm confused, and I d... | 1,767 |
fomc | 2,007 | Thank you. It's 10:30. It would be a good time to take a coffee break. Why don't we return at 10:50. | 31 |
fomc | 2,007 | Why don't we recommence. Vice Chairman. | 9 |
fomc | 2,007 | Thank you. The outlook for real activity has deteriorated somewhat since our last meeting. In our modal forecast we now expect several quarters of growth below potential with real GDP for '08 a bit above 2 percent. The sources of the deterioration in the outlook for us are pretty much as outlined in the Greenbook. What... | 1,628 |
fomc | 2,007 | Thank you. Governor Kohn. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. The outlook for economic activity has weakened over the intermeeting period. The housing bust looks steeper with importantly greater declines in prices, and that will affect future consumption. Weakness in housing and the uncovering of greater losses at key financial intermediaries have contrib... | 1,236 |
fomc | 2,007 | Thank you. Governor Warsh. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Like many of you, I think that the risks of bad economic outcomes are higher than they were when we met in October, both here in the United States and among our trading partners. The profound deterioration in financial markets--which in my view has changed significantly, more so than the data o... | 2,360 |
fomc | 2,007 | Thank you. Governor Kroszner. | 9 |
fomc | 2,007 | Thank you. At the last meeting I expected a somewhat rougher patch, particularly in housing, than the last Greenbook scenario--a sort of slow-burn scenario, or something that Dave made reference to. But over just the past three weeks or so, the heat of that fire has become a lot greater than I had expected in terms of ... | 1,798 |
fomc | 2,007 | Thank you. Governor Mishkin. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. You are all aware that I have a very optimistic personality; and at the last FOMC meeting, I actually had that kind of optimism. I felt that the economy was evolving in a quite reasonable way and, in fact, was responding to our policy changes in a way that I felt was very appropriate in order t... | 1,502 |
fomc | 2,007 | Thank you, Governor. Well, again, thank you for a very helpful discussion. Let me just try to briefly summarize and then offer a few additional comments. Many participants obviously gave considerable attention to the resurgence of stresses in financial markets, including the increased losses by financial institutions, ... | 1,060 |
fomc | 2,007 | I believe David and his fellows can provide you with some pills. [Laughter] | 17 |
fomc | 2,007 | But I think I'm in the camp of those who see a fundamental softening going on here. One indicator is the pattern of final demand. This zigzag pattern has been mostly in a situation with basically about 2 percent growth in final demand but with quarter-to-quarter variation in exports and inventories. We see in this case... | 1,345 |
fomc | 2,007 | 2 Thank you, Mr. Chairman. I will be referring to the draft announcement language in table 1, which is unchanged from the version distributed in the Bluebook and which is included in the package labeled "Material for FOMC Briefing on Monetary Policy Alternatives." As shown in section 4 of the left-hand column, followin... | 2,246 |
fomc | 2,007 | Thank you very much. Questions for Brian? President Evans. | 12 |
fomc | 2,007 | Brian, thank you very much for that answer. I have a clarifying question because I'm not quite sure I caught, in the way you talked about the economic risks in section 4 of alternative B, how they could be added. One thing that I wanted to ask about is that in section 2 there's no mention of downside economic risks. At... | 204 |
fomc | 2,007 | President Evans, in response to your first question, the suggestion for section 4 of alternative B would be to add after the "Recent developments..." sentence, "On balance, the Committee sees downside risks to growth as having increased, but it must also remain attentive to the upside pressures on inflation." With rega... | 117 |
fomc | 2,007 | Any other questions? All right. President Rosengren. | 12 |
fomc | 2,007 | Thank you, Mr. Chairman. Weakness in economic data reported since the last meeting, continued financial turmoil, and a forecast that places us uncomfortably close to a recession calls for action, and my strong preference is for the decisive action reflected in alternative A. With well-anchored inflation expectations an... | 116 |
fomc | 2,007 | Thank you. President Yellen. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. With respect to policy, I also favor alternative A, a 50 basis point rate cut. Let me explain my reasoning. Otherwise I certainly agree with what President Rosengren said. First, I think the equilibrium real rate of interest is low relative to its long-run average. The range of medium-run measu... | 755 |
fomc | 2,007 | Thank you. President Lacker. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I favor a 1/4 point reduction in the funds rate and the language of alternative B. Perhaps more than usual I think it is important to preserve some flexibility now to respond to incoming information. I would not be surprised if we want to reduce the funds rate another 1/4 point at the end of Ja... | 681 |
fomc | 2,007 | Thank you. President Hoenig. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I would say that when Governor Mishkin talked about the importance of maintaining long-anchored expectations about inflation, I agreed with that. I think that is more vulnerable than others do, and so if it were on the table, I would support maintaining the rate. I think inflation risks are ele... | 265 |
fomc | 2,007 | President Hoenig, did you have a view on the statement? | 13 |
fomc | 2,007 | I do. Turning to the statement, I think the language in alternative B is the right language, regardless of which--A, B, or C--we choose. I think in particular I would prefer that we not assess a balance of risk and instead simply state that recent events have increased the uncertainty on output and inflation. Thank you... | 68 |
fomc | 2,007 | President Poole. | 4 |
fomc | 2,007 | Thank you, Mr. Chairman. I favor alternative B, including the language, and let me outline how I get there. First, I think that it is important to recognize that the Greenbook outlook already takes account, as best we can or as best the staff can, of a lot of the dismal financial news that is out there. There is a prob... | 567 |
fomc | 2,007 | You will be sailing. | 5 |
fomc | 2,007 | Not quite after that meeting. It is still a little cold. [Laughter] But my instinct is that we have demonstrated a willingness to act decisively when there is a very good case in the data. So if data come in with very bad employment reports, additional financial distress, and all of that, I don't think there is any que... | 382 |
fomc | 2,007 | Thank you. Governor Kohn. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I support the action and language of alternative B. I think rates are too high right now to support the economy's remaining near full employment and higher than they need to be to contain inflation. When we left the meeting last time, we thought we might be where we needed to be, but that was p... | 603 |
fomc | 2,007 | Thank you. President Stern. | 6 |
fomc | 2,007 | Thank you, Mr. Chairman. Well, I think we clearly should be reducing the federal funds rate at this point. While I think it is a close call, I guess I would come out with doing a quarter at this meeting. Basically, I get there by just trying to weigh the risks. I think the principal risk is the dysfunction in financial... | 233 |
fomc | 2,007 | Rules versus discretion. [Laughter] Thank you. President Plosser. | 16 |
fomc | 2,007 | Thank you, Mr. Chairman. In the last two meetings, the Committee cut the funds rate 75 basis points. We did so because the outlook for the economy has clearly deteriorated relative to our views in early August. We have argued that we have been acting preemptively to help forestall and to mitigate potential fallout from... | 870 |
fomc | 2,007 | Thank you. President Lockhart. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. As I listened to the first go-round comments, I charted everyone in a quadrant chart with high risk to growth and benign inflation in the upper left-hand corner. Then, I had of course three other squares or quadrants, and so far I am seven for eight listening to the remarks. So maybe this predi... | 557 |
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