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fomc | 1,994 | Well, I can address this on two levels. One is simply the arithmetic of plugging in the actual data that are now available in place of the assumptions that the BEA had made. And this is primarily data that have changed on inventories, retail sales, and construction. On net, those numbers would seem to chop a good perce... | 228 |
fomc | 1,994 | Thank you. | 3 |
fomc | 1,994 | President Boehne. | 5 |
fomc | 1,994 | There has been a fair amount of discussion about capacity--how much of it we have left before we have inflationary pressures--and about the growth potential of the economy. Most of these estimates, particularly the growth potential, can change with seemingly small changes in assumptions, like labor force participation ... | 149 |
fomc | 1,994 | Our working assumption is that, in the near term, potential output growth is about 2-1/2 percent. I think one might take a more optimistic view of the underlying productivity trend--assign more of the increase we've seen over the past few years to perhaps sustainable underlying trend growth, as opposed to the normal cy... | 444 |
fomc | 1,994 | President Jordan. | 3 |
fomc | 1,994 | First, to follow-up on Bob Parry's question about the inflation statistics, the first four months of 1993 were initially reported as averaging 4.3 percent. We use a thing that we call the median CPI as an alternative to the CPI less food and energy to try to monitor what these numbers are telling us as the year unfolds... | 314 |
fomc | 1,994 | Well, President Jordan, let me just say that we have no reason to think that this hasn't been a distinct improvement in the seasonal adjustment. | 28 |
fomc | 1,994 | Right, I don't disagree; it's closer to the median, though. | 14 |
fomc | 1,994 | Well, actually, the median generally has been running very close to the regular core inflation number over the past year. They are almost identical on a 12-month basis. But the key here is that I don't see on technical grounds a reason to be very concerned at this point that, in essence, the recent data have been overs... | 129 |
fomc | 1,994 | Well, I think that the median and the so-called "core" track very well, within a couple of tenths, most of the time and furthermore over longer periods of time the median and the actual CPI come out to be virtually identical, but the median for these four months currently is running 2.9, and I have more confidence in t... | 100 |
fomc | 1,994 | Yes, but that's splitting hairs in terms of the measurement accuracy. | 13 |
fomc | 1,994 | Well, not quite because remember last year we got the dip in the latter months of year as initially reported; those got revised, too. If the median is telling the truth and we have had four months of 2.3 and it's really going to average out 2.9 over the year, then it's going to have to be running a few months up in the... | 414 |
fomc | 1,994 | Well, I think it's pretty close with the minor exception that I would suggest that, in terms of the inflation forecast, the behavior that we're predicting is not simply a function of expectations but also of our judgment that the output path producing the unemployment rate and capacity utilization rates leaves a modest... | 484 |
fomc | 1,994 | President Hoenig. | 4 |
fomc | 1,994 | Thank you, Mr. Chairman. My question has been answered. | 13 |
fomc | 1,994 | President Broaddus. | 5 |
fomc | 1,994 | Mike, in the same vein as Jerry's question, it seems to me that much of the overall profile of the projection depends on the idea that the recent run-up in long rates is going to restrain the economy in the future. In that context--I know you think that most of the recent increase has been real--I would be interested i... | 105 |
fomc | 1,994 | Well, if I take the base as last October's low when the rate was about 5.8 percent, that's an increase of some 170 basis points, if I've done my arithmetic correctly. I would judge that more than half of that is real. That's a seat of the pants judgment and I can't point to any clear-cut analytical support for it. I ce... | 154 |
fomc | 1,994 | I'm just trying to pin it down a little more. | 11 |
fomc | 1,994 | In looking at the behavior in the housing market, as limited as the evidence is at this point, people have not on the evidence dismissed these higher rates as being simply a reflection of higher inflation in terms of what they might expect for their wages or for house prices going forward. We wouldn't have seen as much... | 79 |
fomc | 1,994 | But would you say that currently, taking the 30-year bond rate, that maybe 4 percentage points of it is real? Am I doing my arithmetic right? | 33 |
fomc | 1,994 | Well, looking out over a 5- to 10-year span, I guess I would be more comfortable asserting that market expectations would be on the order of 4 percent inflation. They could be a little lower, but that would leave the real rate a little lower than it has been. | 59 |
fomc | 1,994 | The backward-looking survey indicators contained in the financial indicators package put real rates at 3 to 4 percent. | 22 |
fomc | 1,994 | Wouldn't 4 percent be on the high side historically for the longest real rate? That's really what I'm trying to get at. | 26 |
fomc | 1,994 | Yes, except for the 1980s; the rate is about where it was for much of the 1950s and 1960s. | 31 |
fomc | 1,994 | But by longer-term standards, it would be quite high I think. I tried to figure that out in the current-- | 24 |
fomc | 1,994 | Indeed, that's one of the reasons, given our assumption that there will be at least mild fiscal restraint and that inflation expectations will be going down, I think there is a discernible downside risk to our bond yield forecast; we have it really not getting much below 7 percent by the latter half of 1995. | 64 |
fomc | 1,994 | Further questions for the gentlemen? If not, would somebody like to start the Committee discussion? | 18 |
fomc | 1,994 | Thank you, Mr. Chairman. Our District continues to be healthy. Housing has remained very strong, although many now expect that perhaps some slowing will come with higher interest rates. Manufacturing continues to improve. Our auto plants are still producing at very high levels. The energy area remains mixed but natural... | 391 |
fomc | 1,994 | President Keehn. | 4 |
fomc | 1,994 | In terms of the District, the underlying level of activity, which of course has been strong, just continues to gain momentum. The auto industry, for example, which directly and indirectly so dominates our area, continues to exceed our earlier expectations. Second-quarter production schedules were set at 12 percent over... | 1,078 |
fomc | 1,994 | President Parry. | 4 |
fomc | 1,994 | Thank you, Mr. Chairman. Part of the Twelfth District continues to show very strong growth. Outside of California, the growth of employment between March 1993 and March 1994 was 3.3 percent. And over that period three states--Nevada, Idaho, and Utah--ranked first, second, and third in the nation in terms of job growth,... | 593 |
fomc | 1,994 | President Broaddus. | 5 |
fomc | 1,994 | I've been reporting for several meetings that the tone in our District is pretty positive and nothing has changed. I've been in this business for about 20 years now, and I would have to say that I can't remember a time when the anecdotal information we hear in our District was any stronger than it is now. There are ver... | 903 |
fomc | 1,994 | President Forrestal. | 4 |
fomc | 1,994 | Thank you, Mr. Chairman. Conditions in the Sixth District are also very, very good and the expansion is pretty broadly based and relatively balanced. Let me just tick off some of the sectors of the economy. In the retail sector, sales did taper off a little in April although the activity in recent months has exceeded r... | 903 |
fomc | 1,994 | First Vice President Minehan. | 6 |
fomc | 1,994 | Thank you, Mr. Chairman. Things are clearly in recovery mode in New England. Payroll employment has grown for the region as a whole in each of the last three months and jobs overall are about 2 percent above a year ago. This improvement is broad-based. With the sole exception of durable goods manufacturing, all major i... | 486 |
fomc | 1,994 | Thank you. President McTeer. | 8 |
fomc | 1,994 | The economy in the Eleventh District continues to grow moderately, about in line with the national growth rate, possibly a little weaker. Our expansion is broadly based, with the exception of energy and defense-related sectors. Construction in particular is very strong; it moves from strong to booming in some areas tha... | 129 |
fomc | 1,994 | Maybe it's because of the residents! | 7 |
fomc | 1,994 | It's a big mystery. The gains in nonresidential construction are also significant, matching those in housing. Retail, warehouse, and industrial buildings are strong throughout the District. Even commercial property is beginning to rise in price, although there is still a lot of excess commercial property in the major m... | 395 |
fomc | 1,994 | President Boehne. | 5 |
fomc | 1,994 | The District continues clearly to be a part of the Northeast--its growth trend is positive but somewhat slower than the nation. Manufacturing continues to grow, but the pace of growth has flattened out some. The bookings for the future also have gone up rather substantially but that too seems to be flattening out. I su... | 515 |
fomc | 1,994 | President Stern. | 3 |
fomc | 1,994 | Thank you, Mr. Chairman. The District economy continues to be very healthy. The only exception to that is the energy sector, which of course is not very large in the District; otherwise, things continue to do very well. I think people are becoming increasingly optimistic, and that's starting from, at this point, a fair... | 755 |
fomc | 1,994 | President Jordan. | 3 |
fomc | 1,994 | Thank you, Mr. Chairman. Our District is performing in a fashion much more similar to the Seventh District than the Third District. It's a pattern of fairly uniform strengths that are getting stronger. The ag sector is looking forward to a third very good year overall. It's early to tell whether they will meet that exp... | 493 |
fomc | 1,994 | There used to be a big stainless high alloy industry in this country, but it has evaporated. | 20 |
fomc | 1,994 | Yes, and it's a tough one for us, and it's adding a degree of pessimism to the Pittsburgh area especially. The other more or less anecdotal report relates to residential housing. What we are hearing in the District is that the problem is not the cost or availability of funds but the cost and availability of building ma... | 635 |
fomc | 1,994 | President Melzer. | 4 |
fomc | 1,994 | Thanks, Alan. The national economy continues to expand rapidly and its momentum appears, at least to me, to be building. Industrial production, for example, grew at a 5.4 percent annual rate for the four months ending in April, faster than the 4.6 percent rise in 1993. Payroll employment rose at a 2.7 percent rate in t... | 634 |
fomc | 1,994 | Governor Kelley. | 3 |
fomc | 1,994 | Thank you, Mr. Chairman. I'm essentially the same place I was in March, so I'll try to be a little brief today. We have moved policy considerably, three times now, which I think has been entirely appropriate. The reason that I feel particularly comfortable with that comes largely from the fact that I think interest rat... | 763 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | Thank you, Mr. Chairman. The Second District's economy appears to be advancing at a rather nice pace this spring. Preliminary March reports indicate that establishment job growth was strong in most sectors of the economy. Tax receipts suggest that personal income grew at a reasonable pace. Retail sales surpassed the op... | 973 |
fomc | 1,994 | Thank you. Governor LaWare. | 7 |
fomc | 1,994 | I've grown considerably less comfortable since the last meeting with the consensus view that we have a solid economic expansion under way. Not only was the announced GDP growth rate in the first quarter way below staff expectations, but staff now expects a further downward revision of the 2.6 percent number that was an... | 278 |
fomc | 1,994 | Governor Phillips. | 3 |
fomc | 1,994 | Thank you. It appears that the strength of the expansion is deeper and wider than we have seen previously, based on some of the comments made here today. This is partially due I suspect to job creation and acceptance by employees of moves to different jobs--thus more churning in the labor market. Confidence continues t... | 854 |
fomc | 1,994 | Thank you. Governor Lindsey. | 6 |
fomc | 1,994 | Mr. Chairman, what struck me most at the table today was the talk of inflation. I've heard more on that than I've heard in all the meetings I've attended in 2-1/2 years. That was a surprise to me. I don't think that the concern we have in the analysis is really on the demand side. I think the staff is right on target. ... | 526 |
fomc | 1,994 | Thank you, Governor, and that brings us to our coffee break. Let's take five, seven minutes. | 21 |
fomc | 1,994 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,994 | Questions for Don? | 4 |
fomc | 1,994 | Don, I just wanted to ask about the April tax payments and whether you think there is any peculiar behavior occurring that may be depressing M1 in the short run. A year ago we had a similar experience but you didn't mention that in terms of-- | 50 |
fomc | 1,994 | It's hard to parse this, President Melzer. In fact, April tax payments were up considerably from last year while last year they were low relative to the year before. It is true that this year's payments were less than we and everyone else had expected. So it's a little difficult to know exactly what seasonals were buil... | 206 |
fomc | 1,994 | President Jordan. | 3 |
fomc | 1,994 | Don, I read the Bluebook as saying a 4-1/2 percent funds rate is neutral and here's an attempt to produce that kind of policy stance. All of your commentary was in terms of the "C" versus "D" alternatives, a 1/4 point versus a 1/2 point increase. You didn't discuss the pros and cons of going immediately to 4-1/2 percen... | 252 |
fomc | 1,994 | Well, a couple of points. First, as between the 4 and 4-1/4 percent, I had assumed that those were the two options on the table. To be sure, moving eventually by more can't be ruled out--75 basis points or even more. I tried, but perhaps it didn't come through in my remarks, to raise the issue that 4-1/4 percent certai... | 332 |
fomc | 1,994 | If there are no further questions, why don't I begin? One of the interesting aspects of this whole period has been the extraordinarily parallel pattern of movement between dollar-denominated long-term rates and the deutschemark and the whole series of other currencies, despite the fact that there are no very persuasive... | 1,943 |
fomc | 1,994 | Mr. Chairman, as you know, I've been a proponent of gradualism, but I believe we're at the point where we need to take more aggressive actions. I think the gradualistic approach may have created some uncertainty in the market. I've heard some of the same comments as were reported earlier. People have suggested that if ... | 166 |
fomc | 1,994 | President Parry. | 4 |
fomc | 1,994 | I, too, would support a 50 basis point move and I prefer a symmetric directive. I must admit I'm not convinced at this point that our gradual approach was the wrong one, and it still may serve us well in the future. But I do think 50 basis points is appropriate at this time. The other point I'd like to make is that I h... | 113 |
fomc | 1,994 | Excuse me, I'll just read you a very preliminary draft. | 13 |
fomc | 1,994 | Which you just happen to have! | 7 |
fomc | 1,994 | I just happen to have it here! This implies that we move on both the discount rate and the funds rate. "These actions, combined with the three adjustments initiated earlier this year by the FOMC, substantially remove the degree of monetary accommodation which prevailed throughout 1993. As always, the Federal Reserve wi... | 92 |
fomc | 1,994 | Good. | 2 |
fomc | 1,994 | President Melzer. | 4 |
fomc | 1,994 | Alan, I would endorse what you recommended. I'd like to briefly state my reasons. First of all, as you know I've viewed the stance of monetary policy as having been very accommodative for some time, which I think will lay the basis for an acceleration in inflation. Over the last three years, for example, our net open m... | 339 |
fomc | 1,994 | Neither do we. President Broaddus. | 9 |
fomc | 1,994 | Needless to say, I support your proposal enthusiastically, but I share Tom Melzer's feelings. When I heard the statement I had the same kind of feelings that you had, Tom--that it may tend to suggest that we've reached a plateau or reached neutrality. Maybe we can work on it a little bit. Also, along those lines, I don... | 121 |
fomc | 1,994 | President Boehne. | 5 |
fomc | 1,994 | I support a 1/2 point increase, the symmetric directive, and I like the draft statement the way it is. | 25 |
fomc | 1,994 | First Vice President Minehan. | 6 |
fomc | 1,994 | I agree with President Boehne. We support the 50 basis points; we support the symmetric directive, and the wording of the statement. | 29 |
fomc | 1,994 | President Stern. | 3 |
fomc | 1,994 | I support the proposal in its entirety. I am a little concerned--somebody mentioned this earlier--about the comments we get from time to time that we ought to take whatever actions we're going to take and then pause. I don't think the statement gives the impression that we're necessarily locking ourselves into that for... | 131 |
fomc | 1,994 | President Hoenig. | 4 |
fomc | 1,994 | I endorse the proposed moves, both of them. The economic case continues to exist for this move and I think we do have a window of opportunity for making it. I support symmetric language. I am a little concerned about the statement giving the impression that we are satisfied or that this pause may run a while, although ... | 85 |
fomc | 1,994 | President Keehn. | 4 |
fomc | 1,994 | Well, Mr. Chairman, I certainly support the proposal. The only question I have is a technical one. Is this a single announcement today and is it going to be announced by you or announced by the Committee or-- | 44 |
fomc | 1,994 | It's going to be announced as a part of the discount rate announcement. In other words, there's no need to make two separate announcements. | 27 |
fomc | 1,994 | Okay. | 2 |
fomc | 1,994 | It's not by me; it will be by Joe Coyne. Governor LaWare. | 17 |
fomc | 1,994 | Mr. Chairman, I'm very pleased to support your recommendation, and I think the elegance of the language permits the interpretation that was intended--that we may still be probing, that we are not sure that we are at neutrality, that we have taken a significant step forward, but we're not at all committed to standing pa... | 73 |
fomc | 1,994 | One suggestion, I'm sorry to butt in, but maybe the phrase "significantly reduces" rather than "substantially removes." I don't know whether that-- | 33 |
fomc | 1,994 | We played with that. I think it's a tricky issue and I'm trying to avoid--if we ever tried to write a communique around this table we would be here for a good six months! President McTeer. | 44 |
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