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fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | I have a couple of questions. I'm not sure whether the first one is for Mike or for Tom. Going back to Chart 8 on real interest rates and fiscal scenarios and so on and comparing that with a statement in the Greenbook, I'd like a little further elaboration. You make references to what you call fiscal restraint. I under... | 128 |
fomc | 1,995 | Let me interrupt you there. MR. JORDAN. Okay. | 14 |
fomc | 1,995 | We wanted to make that as clear as we could--and I guess w failed--or maybe we did do it as clearly as we could but that wasn't clear enough! We didn't mean that adjustment in the nominal rate, which we took to be a reflection of a change in the natural r :e, to be viewed as monetary stimulus. In effect, it keeps thing... | 268 |
fomc | 1,995 | Okay, and I have absolutely no problems with that. I do still have a little problem with the references to bond markets being adaptive. It's like saying: If the bond market rallies enough, we don't have to lower the funds rate, and that gives me a little problem. But let me hold that for a second. The Greenbook says: "... | 152 |
fomc | 1,995 | Assuming inflation expectations remain constant. | 7 |
fomc | 1,995 | So, whatever causes the equilibrium rate to move down--fiscal policy, or God, or something--you would say, even though the headlines may say a lower nominal rate is an easing, that failure to lower the nominal rate is in fact more restrictive. | 52 |
fomc | 1,995 | That's right. | 3 |
fomc | 1,995 | Okay. | 2 |
fomc | 1,995 | I should emphasize that, given our limited ability to predict these relationships, the calibration of this is clearly very uncertain. I think the point of Tom's presentation here, which is a schematic one in a sense, is simply that if there are large anticipatory reactions in the bond market, then you do not need to mo... | 140 |
fomc | 1,995 | I want to draw out this conceptual aspect. I do have a problem with this last point about the rally of the bond market, but that's because I translate it into supply and demand for reserves and what that might do in terms of quantities. And that's because I have a different framework. Let me hold that one, though, beca... | 414 |
fomc | 1,995 | I did not mean to suggest any pejorative notion by using the word "deflation." I meant it literally as just that the rate of change of certain prices was negative. Now, it is certainly true that it is happening in the goods sector because to some degree what you described has happened. That is, we have opened up--a lit... | 378 |
fomc | 1,995 | I didn't think you were being pejorative but I wondered about that policy conclusion. I don't see how what you called fiscal stimulus, which I assume is more resources flowing through the government or less taxes, or monetary stimulus is necessarily called for. If what is happening is a breakdown of the various types o... | 115 |
fomc | 1,995 | True, but I am taking into account the other things we know about what is going on in Japan. | 21 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Mike, I have a question that relates to current activity. I have been struck by the fact that nonwithheld income tax payments this April were about $20 billion higher than in each of the two previous Aprils. I wondered what your assessment was as to the impact of that on personal consumption expenditures this spring. I... | 77 |
fomc | 1,995 | It was one of the laundry list of factors that we mentioned in our discussion of consumption in the Greenbook. It works in the right direction. We certainly are not going to argue against that as a possible drag on consumer expenditures. While we are on the subject of consumer expenditures--and I may get additional inf... | 190 |
fomc | 1,995 | Any other questions for anybody? Would somebody like to start our roundtable? | 15 |
fomc | 1,995 | I can, if you don't have another volunteer. | 10 |
fomc | 1,995 | Go ahead. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. The economy of the Second District remains weak, but earnings in the key financial sector appear to be on the rebound. That bodes well for the financial industry itself, for the service sectors which support it, and for needed tax revenues in New York City and the states of New York and New Jer... | 1,112 |
fomc | 1,995 | President Parry. | 4 |
fomc | 1,995 | Mr. Chairman, most of the recent slowing in the Twelfth District economy has been in fast growing states, including Arizona, Idaho, Nevada, and Oregon. California has experienced less of a slowdown than other states and continues to expand at a moderate pace, but from depressed levels. Several large local governments w... | 499 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | Mr. Chairman, the economic data for New England as for the nation indicate at least a pause in the recovery. The anecdotal evidence is more positive. In sum, total employment, housing activity, and confidence indexes have weakened in the region. However, the jobless rate continues to drop. Inflation on both the price a... | 597 |
fomc | 1,995 | President Boehne. | 5 |
fomc | 1,995 | Overall, the Philadelphia District economy is flat to down, probably down in the second quarter going into the third. Manufacturing has been the hardest hit, more so than in the nation as a whole. There is a tentative sense among District manufacturers that the bottom may be near and that an upturn is in the offing dur... | 531 |
fomc | 1,995 | President Broaddus. | 5 |
fomc | 1,995 | Thank you, Mr. Chairman. I would like to take just a couple of extra minutes tomorrow when we talk about the longer-term strategy of policy, so I'll try to make these economic comments this afternoon as brief as I can. As our Beigebook report indicated, our three latest monthly mail surveys of retail, service sector, a... | 679 |
fomc | 1,995 | Well done! President Forrestal. | 7 |
fomc | 1,995 | Mr. Chairman, the recent indications of economic activity in the Atlanta District are fairly mixed, but the important housing and manufacturing sectors are beginning to show some signs of accelerating. Employment growth has pretty much leveled off in the District, although District unemployment rates generally remain b... | 963 |
fomc | 1,995 | President Hoenig. | 4 |
fomc | 1,995 | Mr. Chairman, the Tenth District economy remains moderately strong, but signs of slowing have emerged in recent months as I reported earlier. For example, District employment growth slowed in March and actually turned down slightly in April and May, and the decline was rather broad-based. However, total employment in M... | 521 |
fomc | 1,995 | President Moskow. | 4 |
fomc | 1,995 | Mr. Chairman, reports from our District ccntacts have been more mixed lately. While economic conditions in certain sectors of the District continue to show signs of slowing, some pickup in activity was reported in other industries. Reports from our contacts in the automobile industry and, of course, today's announcemen... | 207 |
fomc | 1,995 | I think Chrysler has announced its sales. | 8 |
fomc | 1,995 | You have the numbers! | 5 |
fomc | 1,995 | They announced today? | 4 |
fomc | 1,995 | Yes. The Chrysler numbers, seasonally adjusted by the Fed, went from a rate of 2.22 million in May to 2.43 million in June. According to Dixon Tranum, our analyst, that puts a rough estimate of total sales in June up slightly from the seasonally adjusted May level. | 63 |
fomc | 1,995 | Is this the first month that Chrysler had the new minivans? | 14 |
fomc | 1,995 | I don't think they have the new minivans. | 11 |
fomc | 1,995 | They are out. | 4 |
fomc | 1,995 | I hope this is not going to throw the seasonals off. | 13 |
fomc | 1,995 | Of course, they are the one company that has widespread incentives for both their cars and their light trucks now. None of the other manufacturers has incentives across the board. Despite the production cuts so far, it is likely that inventories at the end of June remained near the 70-day supply that existed at the end... | 944 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Thanks, Alan. As has been noted, there has been a mix of positive and negative indicators of U.S. economic performance recently, and it is not easy to know what such indicators portend for the future. It's my opinion, however, that the economy has enjoyed a very balanced expansion since its cyclical trough in March 199... | 731 |
fomc | 1,995 | President McTeer. | 5 |
fomc | 1,995 | Growth in the Dallas District has slowed considerably from the pace earlier in the year, but we are still seeing positive employment growth. With high levels of resource utilization still being the norm, the attitudes of our directors, Beigebook contacts, and others remain fairly good. I might say that while our direct... | 370 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. As at the last few meetings, I wanted to give a fiscal policy update, and I have distributed a table to the members of the Committee. I think the table carries with it several messages. First, I would refer you to a comparison of the two columns labeled "1995 Enacted" and "1996 602B Allocation.... | 198 |
fomc | 1,995 | Social Security? | 3 |
fomc | 1,995 | Oh yes, Social Security is not in here; interest payments are not in here. These are real-money-out-the-door types of programs. The $22 billion figure roughly contrasts with the discretionary number of $18 billion that is in the Greenbook. The fact that these cuts are from a nominal level leads me to make some adjustme... | 238 |
fomc | 1,995 | The reason you don't remember is that it has not happened. | 12 |
fomc | 1,995 | It hasn't happened, yes. The chairmen of these subcommittees often are called the 13 cardinals. If you have a problem, no matter what party you belong to, you go to one of the cardinals and their job is to take care of your post office or your road or something like that. Needless to say, when they are up against a 602... | 369 |
fomc | 1,995 | Thank you, quite interesting. President Stern. | 9 |
fomc | 1,995 | Thank you, Mr. Chairman. The District economy continues to do reasonably well based on the available objective measures. There are some problems in agriculture related to weather, but otherwise things seem to be moving along reasonably well. A couple of bright reports have come in recently. One is a firm with a large m... | 797 |
fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | The staff at Cleveland did a survey of various companies across the District on the subject of inventories. The main objective was to gauge business sentiment about current inventory levels. In line with what Gary was just remarking, given their comfort levels with their order books and projected sales, our business co... | 1,164 |
fomc | 1,995 | Governor Kelley. | 3 |
fomc | 1,995 | Mr. Chairman, when the economy is experiencing a slowdown, we can't be comfortable about its potential length or depth until it is over--and this slowdown is not over. I feel that particularly strongly in light of many of the reports that we have had around the table so far today. But that said, I still have to be on t... | 781 |
fomc | 1,995 | Governor Phillips. | 3 |
fomc | 1,995 | Thank you. I think the preparation for this meeting has been for me the most difficult of my tenure, and that is because we are seeing so many conflicting economic signals. We seem to be at the classic fork in the road--whether or not this inventory correction will work itself into a downward spiral or will turn out to... | 522 |
fomc | 1,995 | Governor Yellen. | 4 |
fomc | 1,995 | During the last six weeks my optimism has diminished that the inventory adjustment process is going to be behind us after two quarters and that thereafter the economy will return to trend growth with unemployment in the vicinity of the NAIRU. The inflation outlook, however, has correspondingly improved. Although the mo... | 1,138 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | I have five points to make. I tell you that because then when I get to point four you'll know I am almost finished. | 26 |
fomc | 1,995 | Why don't you start at five? [Laughter] | 11 |
fomc | 1,995 | All right, I'll start with five. That was about inflation. I thought it was a good place to finish. At the last two FOMC meetings I expressed two views--Governor Yellen has scooped me on this. I said that I thought the Greenbook was a shade too optimistic, and I said that history tells us that forecast errors are seria... | 2,069 |
fomc | 1,995 | Thank you. On that beneficent note, we have come to a termination of today's agenda. I want to remind all of the FOMC members of our usual annual dinner at the British Embassy at 7:30 p.m. In the past we have been quite successful in being as obscure as we are usually. But we need to be a little careful because I think... | 145 |
fomc | 1,995 | It should be easy to keep them talking, shouldn't it, given everything that has happened? | 18 |
fomc | 1,995 | That's a good point. I think there are a lot of questions about the future of the U.K. economy. We will reconvene at 9:00 a.m. tomorrow. | 37 |
fomc | 1,995 | With respect to your projections, Mike Prell is keeping an open book and corrections may be submitted through Monday, July 10th. I would also like to call on Mike to bring us up to date on the data that just came out. | 49 |
fomc | 1,995 | Thank you, Mr. Chairman. I will be very brief. Initial claims for the week of July 1 were published this morning and were unchanged at 369,000. You will recall that two weeks ago they showed a spike up to 396,000; they came off last week and were unchanged in the latest week. Insured unemployment was up to 2.7 million.... | 285 |
fomc | 1,995 | What is the translation of the Redbook into reality? What is your guess as to what that means? | 21 |
fomc | 1,995 | We find it to be terribly unreliable, but a change that large might be a signal that we can look for a positive in the retail sales numbers. | 30 |
fomc | 1,995 | Maybe up 0.1 percent! | 8 |
fomc | 1,995 | It is hard to say. That is all the news--some of which probably is not fit to print. | 22 |
fomc | 1,995 | It will be in five years! [Laughter] | 11 |
fomc | 1,995 | Any questions for Mike? If not, let us proceed with the agenda. I call on Don Kohn to bring us up to date on the long-run ranges for monetary policy. | 36 |
fomc | 1,995 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,995 | Questions for Don? | 4 |
fomc | 1,995 | Don, do we have evidence--I think there was some earlier--that the velocity of M2 is now back closer to zero. | 27 |
fomc | 1,995 | The trend in velocity growth? | 6 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | The whole level of M2 velocity has shifted up by, I think, about 15 percent; M2 is about 15 percent lower than we would have thought using old standards. There is some evidence that the growth rate relationships among M2, nominal income, and opportunity costs have come back roughly on track in the last two years or so.... | 167 |
fomc | 1,995 | But it looks stable for the last two years? | 10 |
fomc | 1,995 | Approximately, yes. Now, we have had more M2 growth in the second quarter--by several percentage points--than this model was predicting. In growth rate terms, the model was right on for 1994. I think what happened in the second quarter of this year was that M2 was reacting to the decline in intermediate- and long-term ... | 138 |
fomc | 1,995 | I will phrase this as a question, but it is really a statement: If in fact we are back to a more stable relationship, wouldn't a 1 to 5 percent growth range for M2 be a bit low? | 45 |
fomc | 1,995 | That would give you a midpoint of 3 percent. The Committee has looked at that as providing some sort of benchmark for what it might expect from M2 when reasonable price stability had been reached. | 39 |
fomc | 1,995 | That's the year 2000! | 7 |
fomc | 1,995 | For next year the models actually see growth at the upper end of that range--perhaps consistent with what you are saying--in the 4 to 5 percent area, approximately. | 36 |
fomc | 1,995 | Let me remind you again that we ran those models off our nominal GDP forecast, which is a pretty low number, and you would want to make a mental adjustment for your own forecasts. | 37 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Don, applying the same logic you described with respect to how the 1 to 5 percent range was set for M2, do we have enough confidence about M3--its stability over time and its relationship to M2--to say, if historical relationships obtained, what a comparable range for M3 would be? | 64 |
fomc | 1,995 | No, I don't have enough confidence. In the past, M3 growth has tended to run approximately a percentage point above that of M2, so a 2 to 6 percent range for M3 would not seem to be a bad alignment. But the past experience applies to a period in which depositories were capturing an increasing share of credit extensions... | 195 |
fomc | 1,995 | In setting these M2 ranges, do we normally look for some consistency between the target range and the Committee's nominal GDP projections? We just did our nominal GDP projections for 1996. Their full range is 4-1/2 to 6 percent and the central tendency is 4-3/4 to 5-1/2 percent; we were asked to prepare our individual ... | 297 |
fomc | 1,995 | I think you are right, Governor Yellen, because for a number of years the Committee really has not been taking these aggregates seriously as guides to policy, and as a result it has not been moving the ranges around to make them consistent with its outlook. Part of the problem is that it is very hard ex ante to know wh... | 292 |
fomc | 1,995 | But we were asked to communicate our goals for 1996 and not for 2000. | 19 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | I was going to comment a bit on what Governor Yellen was saying and also point out that I think we are really on the horns of a dilemma. Governor Yellen's point stands by itself in terms of the logical consistency of what the ranges ought to be relative to the central tendency of our nominal GDP forecasts. But it is ha... | 314 |
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