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fomc | 1,994 | That's right. | 3 |
fomc | 1,994 | And so you still see continued stronger growth? | 9 |
fomc | 1,994 | Basically what we have here with the dollar depreciation and the stronger growth abroad is more impetus coming through the external sector, which we have essentially offset through higher interest rate effects on domestic demand. That's the simple version of the story here. | 46 |
fomc | 1,994 | Thank you. | 3 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | I have a question for Mike as well. In preparing for this meeting, we had the research staff at New York play the game of what would be the result of various tightenings. In the model that we used, which is partially in our heads, we got about the same result from a 50 basis point tightening that you get from the 100 b... | 158 |
fomc | 1,994 | You've served up such a softball here, I hate to reject it at all, but I am not sure whether in the greater cyclical scheme of things, I'd call 50 basis points or even a 100 basis points substantial. Now, we're not talking about throwing the economy into recession, but looking back over time, I think, we have seen that... | 242 |
fomc | 1,994 | Who would like to start our Committee discussion? President Keehn. | 13 |
fomc | 1,994 | Thank you, Mr. Chairman. Our 1994 forecast is so close to that of the staff that it's hardly worth mentioning the difference here. In some respects, we get there in a different way. Nonetheless, the 1994 results are the same. For 1995, though, there is a greater discrepancy. Our outlook is somewhat stronger for GDP and... | 890 |
fomc | 1,994 | President Parry. | 4 |
fomc | 1,994 | Mr. Chairman, the economy in the Twelfth District is continuing the trends noted in the last few meetings with weakness persisting in California and Hawaii and strength elsewhere. The situation in California has changed very little. Employment growth has been weak through May, rising at an average annual rate of about ... | 447 |
fomc | 1,994 | President Boehne. | 5 |
fomc | 1,994 | The Philadelphia District economy is growing at a moderate pace, although still less than the nation as a whole. The expansion is generally broad-based, geographically and across sectors. Some slowing, however, is occurring in the pace of growth. Consumer spending is still leading the way, particularly in areas of home... | 553 |
fomc | 1,994 | President Forrestal. | 4 |
fomc | 1,994 | Mr. Chairman, growth in the Atlanta District continues to be quite positive, although we are seeing some moderation, and I think our growth rate is now moving closer to that in the nation as a whole. The exception to this is the State of Georgia where strong in-migration and the beginning of preparations for the Olympi... | 862 |
fomc | 1,994 | President Hoenig. | 4 |
fomc | 1,994 | Thank you, Mr. Chairman. The Tenth District continues to grow at a very good pace. Some early signs of price pressures have emerged and we have reports of high prices and short supplies of some construction materials and scattered reports of labor shortages in the District. Also, we continue to hear of some increases i... | 439 |
fomc | 1,994 | Mr. Chairman, may I just follow-up on something I said to Governor Lindsey earlier, which may not have been the perfectly good answer, as President Hoenig's remark about oil prices and production reminds me. Obviously, with the higher oil price, we could get some stimulus to domestic production that could be positive. ... | 185 |
fomc | 1,994 | The inflation blip but not the nominal GDP blip? | 12 |
fomc | 1,994 | On nominal GDP, it could be a wash and certainly we have simulations that could produce that result. | 20 |
fomc | 1,994 | First Vice President Minehan. | 6 |
fomc | 1,994 | Mr. Chairman, New England continues to recover, with employment about 1/3 the way back to pre-recession levels. Nonfarm payroll jobs have expanded over a year ago in all six New England states, with the regional total growing only slightly below the rate for the nation as a whole. May unemployment rates in all six stat... | 363 |
fomc | 1,994 | President Melzer. | 4 |
fomc | 1,994 | With respect to our projections for 1994, we have somewhat higher rates of nominal GDP growth and inflation than the central tendency, but for 1995 we have significant further acceleration in inflation--considerably more than other members' forecasts that I have seen. Basically, I would attribute that to our view of th... | 946 |
fomc | 1,994 | President McTeer. | 5 |
fomc | 1,994 | I want to add my own two cents worth to the Lindsey question about the spike in oil prices and to what extent it should lead to an increase in the fed funds rate. To me that points out the need for a good reliable monetary aggregate. Then we could say we would not change it; we would stick with it and let the market an... | 469 |
fomc | 1,994 | President Broaddus. | 5 |
fomc | 1,994 | Mr. Chairman, for some time I have been talking about strength in our District. Perhaps I am too sensitive to reports I hear of economic strength, but the recent reports we have gotten from our business contacts and the surveys we conduct suggest to me that, overall, the District economy is still strong. A couple of ex... | 661 |
fomc | 1,994 | Wasn't it higher because of the oil price increase? | 11 |
fomc | 1,994 | That could be. In any case, it was a significant jump, and I think that's something we need to keep in mind. | 26 |
fomc | 1,994 | President Stern. | 3 |
fomc | 1,994 | Thank you, Mr. Chairman. The District economy remains in very good shape, and most of the indicators suggest that that may continue for some time, perhaps for an extended period of time. Employment gains have remained sizable; job availability is good. There are some shortages of labor--in construction trades clearly--... | 477 |
fomc | 1,994 | Vice Chairman. | 3 |
fomc | 1,994 | Mr. Chairman, the economy in the New York District continued to advance at a moderate pace in late spring. Unemployment rates fell and payroll employment rose. State tax collections for retail sales, personal income, and corporate franchises have risen moderately so far this year, suggesting growth in the underlying st... | 559 |
fomc | 1,994 | President Jordan. | 3 |
fomc | 1,994 | I can comment on a number of things in the District that might add to what has been said so far. Generally, people feel that the District economy is stronger than before and better than some people were projecting earlier. I have no conviction at all as to whether this is even a coincident indicator, let alone a leadin... | 1,146 |
fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | Mr. Chairman, this economy sounds as good as it gets. But before we all start feeling too good, I thought I would report on something that I have not mentioned for a little over a year--it won't make us feel good--and that's health care. There are four Congressional committees considering the health care bill, and I th... | 545 |
fomc | 1,994 | Governor Laware. | 4 |
fomc | 1,994 | It may be a habit, but as has been usual in recent months, I am going to play the role of Cassandra and I would encourage you to worry with me about the economic environment. I am convinced that the moderation in housing, autos, and retail sales is not as much a function of higher interest rates as it is a function of ... | 266 |
fomc | 1,994 | Governor Kelley. | 3 |
fomc | 1,994 | Mr. Chairman, I have been comfortable with all of the policy moves we have made this year. The primary reason is that it certainly has seemed to me that we needed to remove the stimulus from policy that was there for a long time and was no longer appropriate. But I have had questions throughout the spring as to what th... | 427 |
fomc | 1,994 | Governor Phillips. | 3 |
fomc | 1,994 | Thank you, Mr. Chairman. While the expansion appears to be continuing, the question is at what pace, and we all seem to be struggling with this question as to whether we are below, at, or above capacity. On the supply side, how much slack is left in the labor and product markets? Even if we had good historical measurem... | 951 |
fomc | 1,994 | Governor Blinder. | 4 |
fomc | 1,994 | Thank you, Mr. Chairman. As all of you know, I wasn't here when this tightening started, and I was trying to imagine, if I had been here on February 4th, what I would have wished for July. I think I would have wished for almost exactly what we have gotten in terms of the real and nominal economy. I wouldn't have wished... | 343 |
fomc | 1,994 | You can do the right thing and turn out right. | 11 |
fomc | 1,994 | And you can do the right thing and turn out right, which is the way it looks for now. The staff's forecast looks about correct to me, given the further tightening of monetary policy that's assumed in that forecast. I call attention to something that I felt very much and that Mike Prell pointed to himself, that the 3-1/... | 561 |
fomc | 1,994 | Thank you. We meet at the British Embassy at 7:30 p.m. for cocktails, and I assume dinner around 8:00 p.m. Transportation for the presidents will be at the Watergate from 7:10 to 7:15 p.m. and here for Board members also at 7:10 to 7:15 p.m. | 74 |
fomc | 1,994 | I call on Mr. Kohn. | 8 |
fomc | 1,994 | [Statement--See Appendix.] | 6 |
fomc | 1,994 | Don, let me sort of interpolate on what you ended up saying with respect to providing 1996 projections to Congress. I think our public policy posture always has to be in favor of either low or declining unemployment rates or low or declining inflation. The truth of the matter is that while monetary policy matters, it o... | 485 |
fomc | 1,994 | There might be a reaction that the Fed is paying a little more attention to debt, that is, you bothered to change the range instead of leaving it. But I think it would depend crucially on the rhetoric that was associated with the change. If it was explained that slower debt growth has been occurring over recent years a... | 124 |
fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | Thank you, Mr. Chairman. Don, I was surprised by Chart 1, particularly in light of what the Chairman just said about our eclectic views of the Phillips curve, which is that one probably exists in the short run but not in the long run. That Chart 1, if I believed it--and I believe everything you tell me, Don--would conv... | 146 |
fomc | 1,994 | I think the models embody a vertical long-run Phillips curve; it takes a while for it to come out here. | 23 |
fomc | 1,994 | Into the next millennium! | 5 |
fomc | 1,994 | Yes. If you had not noticed that the inflation rate is up at 4 percent and the only reason it's not continuing on the upward trajectory is that we bent the unemployment rate up and so you have-- | 41 |
fomc | 1,994 | But never backwards? | 4 |
fomc | 1,994 | No. | 2 |
fomc | 1,994 | Only the coefficient is unchanged even though it gets smaller. What Governor Lindsey's saying is arithmetically irrefutable. | 25 |
fomc | 1,994 | In this time period, that's right. But if you stretched out-- | 14 |
fomc | 1,994 | Then the interesting question--I am sorry. | 9 |
fomc | 1,994 | No, go ahead, please finish. | 8 |
fomc | 1,994 | It strikes me that if we're postulating that there is no evidence of long-term Phillips curve tradeoffs, but that there is one in the short run, it therefore follows that somewhere between the short run and the longer run, it is backward sloping. | 51 |
fomc | 1,994 | Right. | 2 |
fomc | 1,994 | If the unemployment rate had not come back up toward the natural rate, inflation would have continued to accelerate on a straight upward line. If you believe that there are some costs to inflation, those are not embodied here; that is, the uncertainties and costs of higher inflation rates are not in here. I think it is... | 90 |
fomc | 1,994 | What does this cost? I assume the civilian unemployment rate is not a bad proxy for real GDP, so we never pay a real output cost. The only time the unemployment rate even starts to go up under this chart is when we eventually raise the fed funds rate. | 53 |
fomc | 1,994 | But if you didn't do that, the inflation rate would continue to accelerate forever. | 16 |
fomc | 1,994 | But if I were going to vote just on this chart or if Mr. Gonzalez or any member of Congress asked me to vote on this chart for a term that exceeds a senator's term, we now can vote to have an interval, which is really what we want to look at on the CPI, that would--let us see it looks like, I am just going to ballpark ... | 116 |
fomc | 1,994 | You have a percentage point of inflation cost. There is, as you say, an interval if you go from 3 percent inflation forever to 4 percent inflation--without taking account of the feedbacks on economic growth but just in Phillips curve terms--in which you will realize some extra output in the meantime because you can dri... | 103 |
fomc | 1,994 | And when will we ever pay the price? | 9 |
fomc | 1,994 | When you tried to bring inflation back from 4 percent if there were a cost associated with 4 percent rather than 3 percent in terms of the efficiency with which the economy operates. | 37 |
fomc | 1,994 | But there's no cost in terms of output? | 9 |
fomc | 1,994 | Unless there is a feedback from the 4 percent to 3 percent on productivity and on efficiency. | 20 |
fomc | 1,994 | Governor Blinder. | 4 |
fomc | 1,994 | I just want to make a comment, but first a technical question. Do these results come out of the MPS econometric model? | 27 |
fomc | 1,994 | The baseline is judgmental; the deviations from the baseline come out of the MPS model. | 19 |
fomc | 1,994 | That thing will cycle as you let it run; so that's one part of the answer. I am a little surprised that it actually hasn't crossed zero by 1999, but it's going to cross zero and actually get, I think, to fairly exciting numbers on the other side before it cycles back down again. But the main point is that this really s... | 152 |
fomc | 1,994 | If you extended that to 2006 or 2008 or something like that, you do believe I think that we would actually be starting-- | 29 |
fomc | 1,994 | I think this would probably cross in the year 2000, if you just let the MPS model run. | 23 |
fomc | 1,994 | Yes, but the fact that the base case is a judgmental model tells you something about the add factors that we have to deal with in this broad MPS model. If we allow the MPS model to run with no add-factor changes, the results we'd get--I will stipulate without knowing it and Mike can take a shot at me if he wants to--wo... | 400 |
fomc | 1,994 | I was going to suggest not only removing the dates from the horizontal line but also removing the scale from the vertical line. [Laughter] I agree with what you said, Mr. Chairman; it is supposed to illustrate tendencies. | 46 |
fomc | 1,994 | I have no quarrel with anything you said, Mr. Chairman. Indeed, it's a point that I have made many times, and I have convinced myself that I should be very leery about presenting these kinds of simulations. If I don't buy the model in the baseline forecast, why should I buy the differentials literally? Now they are pro... | 257 |
fomc | 1,994 | I just want to make one response to Governor Blinder. It is true that when the inflation rate went to 4 percent, we responded. But if we believed the MPS model with its linearities and the very long-term implications for tradeoffs, we basically would have said, well, 4 percent is acceptable. That's because I found, loo... | 445 |
fomc | 1,994 | President Stern. | 3 |
fomc | 1,994 | I just want to comment on what we have been discussing. I think one of the problems with an exercise using this approach is that there are no explicit costs associated with inflation. That was implicit in Governor Lindsey's comments. But if we continue to look at it this way, we are always going to say, at least at fir... | 158 |
fomc | 1,994 | That basically is built into any Keynesian structure that does not have a feedback mechanism that overwhelms the Phillips curve and turns it around. None of the models of which I am aware, including the one in which you draw a vertical Phillips curve in the long run, which is correct for the long run, answers the quest... | 165 |
fomc | 1,994 | Mike, along the same lines, as I remember, a couple of years ago you were experimenting with a model that had a forward-looking expectations formulation mechanism in it. As I recall, you actually ran some simulations on that model at one point and included those in the Bluebook or at least a description in the Bluebook... | 88 |
fomc | 1,994 | They weren't used in the Bluebook; they were based on the experimental model. This was done in the International Finance Division. We did it for the special presentation that was made for the FOMC on costs of inflation. But I think the characteristics of those models were not different fundamentally--at least what I to... | 150 |
fomc | 1,994 | Mr. Chairman, I think it's important to mention that if people anticipated this higher rate of inflation, we might not get this short-run output gain. | 30 |
fomc | 1,994 | To be explicit, under the tighter alternative on Chart 1, I think something like that model would show that the cost --in terms of unemployment--of moving toward price stability in this timeframe would be lower. I am not suggesting that you substitute that kind of model for this model. I am only suggesting that it was ... | 81 |
fomc | 1,994 | As Mike explained, there are two projects under way this year in which the staff is trying to produce a richer set of models for you to draw on, which will probably confuse matters further. But our objective is to try to improve these models and to be able to capture, if I can put it that way, a richer mix of the expec... | 100 |
fomc | 1,994 | Ted, it strikes me that what you are basically saying is that we are missing a few variables in the system, such as a statistic for inflation expectations as a key operative variable. If you want to look at the feedback effect, one would presume that the actual mechanism through which it would work basically would be t... | 140 |
fomc | 1,994 | At least that expectations might be shaped by something other than the experience of the past several years-- | 19 |
fomc | 1,994 | Yes. I am not saying what that is a function of. We know it's a very difficult issue, but that is the key variable. It's important, but just because we can't make a judgment as to what these driving forces are in an econometric sense doesn't mean that it's not real. President Boehne. | 63 |
fomc | 1,994 | I just wanted to make an additional point in this discussion about whether one believes the model or not. If you believe that you can go from 3 percent to 4 percent inflation and permanently buy some increases in output and jobs, when you get to 4 percent you will also find the model will show that you can go from 4 to... | 139 |
fomc | 1,994 | Governor Lindsey. | 3 |
fomc | 1,994 | I'd like to take President Boehne's point and just reduce it to a single question. If we ran the model out, do we believe that if we applied some social rate of discount, the losses in output later on would be more than, less than, or equal to the gains in output in the short run? | 65 |
fomc | 1,994 | The model itself doesn't have, I don't believe, losses in output from higher inflation rates. | 18 |
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