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fomc | 1,995 | More investment in producers durable equipment. [Laughter] | 11 |
fomc | 1,995 | Dave Stockton has the floor. | 6 |
fomc | 1,995 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,995 | [Statement--see Appendix.] | 6 |
fomc | 1,995 | Questions for either gentleman? | 5 |
fomc | 1,995 | Dave, you have some fiscal restraint built into your forecast and you just indicated-- | 16 |
fomc | 1,995 | Excuse me; may I just interrupt for a second? Let me request that everyone move their papers away from the microphones, the little disks directly in front of you. I think the system works fine provided we don't block up the microphone system. | 49 |
fomc | 1,995 | Your forecast has some fiscal restraint built into it and you also, as you just indicated, have a relatively lower inflation forecast; and yet I notice that your assumed long-term interest rates remain pretty much at their current levels over the forecast horizon. I am a little confused about that. I would have expecte... | 67 |
fomc | 1,995 | The principal reason we have relatively flat rates over the next year or so is that our forecast is basically balanced. We have the occurrence of fiscal restraint. We also have additional demand crowding in on the net export side and relatively well maintained private domestic demand. In our inflation forecast, the und... | 92 |
fomc | 1,995 | President Parry? | 4 |
fomc | 1,995 | Dave, I would like to ask two questions about labor force developments. As I am sure you know, in the last year or so there has been a lot of volatility in participation rates and in particular a very sharp decline in May and a further decline in June. I wonder if the staff has had any thoughts about what is going on i... | 118 |
fomc | 1,995 | On the first part, we have been less puzzled with respect to the volatility in the participation rate, which has often been volatile in the past. The real question has been the basic flatness that we have had in participation, even as labor markets appeared to improve considerably. To be quite frank, I don't think we h... | 152 |
fomc | 1,995 | Thank you. | 3 |
fomc | 1,995 | President Stern. | 3 |
fomc | 1,995 | I have a couple of questions. First, Charlie, on the international side: With regard to the other industrial nations, as I looked at your projections I couldn't discern the reasons you are expecting improvement in their economic activity. Is that based on the general cyclical notion that those economies have been growi... | 96 |
fomc | 1,995 | It is partly that the slowdown in the first half may well be an aberration with respect to underlying trends and underlying strength in those countries. The German economy felt some impact from the depreciation of the mark, which is now being partially reversed. We anticipate some Japanese policy measures as well, alth... | 87 |
fomc | 1,995 | Second question: I don't fully understand it, but I gather that BEA is going to use the chain-weighted index to deflate GDP and that will lower previous estimates of real GDP, significantly in some cases. Does that also mean that productivity estimates are going to come down significantly? If so, is that really credibl... | 65 |
fomc | 1,995 | We have taken a look at trend productivity estimated by using the new Fisher ideal chain-weighted index, and that suggests that the trend in productivity has basically been constant since about 1980. What one sees as a pickup in trend productivity using 1987-based dollars appears to be a statistical artifact that arise... | 208 |
fomc | 1,995 | Let me add just one other comment that works in the other direction. There are other changes that BEA is considering implementing over the next several years. One in particular that would work the other way would be the inclusion of software as final output. At present, when software is not bundled with the computer, i... | 172 |
fomc | 1,995 | There is a major statistical problem. We are all acutely aware that there has been a shift toward increasingly conceptual and impalpable value added and that actual GDP in constant dollars is becoming progressively less visible. All of these intellectual services have historically tended to be written off as expenses i... | 388 |
fomc | 1,995 | Didn't the previous Greenbook mention a switch from basing productivity on income to basing it on expenditures as a more realistic way to assess productivity because of the increase in the statistical discrepancy? Doing that will reduce the growth of productivity. | 46 |
fomc | 1,995 | Only in the most recent quarters. The statistical discrepancy doesn't have a particular trend to it. | 18 |
fomc | 1,995 | Hasn't it gotten wider in recent quarters? | 9 |
fomc | 1,995 | In the most recent couple of quarters. | 8 |
fomc | 1,995 | That's a factor that is going to work in the same direction as the chain-weighted index. | 19 |
fomc | 1,995 | I don't think that's a trend phenomenon. | 8 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | Dave, when you outlined the downside and upside risks, you didn't mention what I had guessed you would start with, which was the fiscal situation. If you were doing the Greenbook forecast in a DRI framework, which gives the majority probability forecast, and, say, your alternatives, and you said: here is my forecast wi... | 99 |
fomc | 1,995 | I am not sure that we have any particular political forecasting acumen that could predict how this fall's budget negotiations are going to unfold. Obviously, our best estimate or highest probability estimate is that some agreement will be reached in the fourth quarter that will avoid the more dire fiscal scenarios that... | 76 |
fomc | 1,995 | What I am getting at is this: You have one alternative forecast that has more fiscal contraction, and you have another that has less fiscal contraction. | 29 |
fomc | 1,995 | Right. I would say that we are still showing less fiscal restraint in our forecast than is embodied in the budget resolution passed in Congress. Therefore, if we end up with almost exactly what that budget resolution shows, we probably would show slightly weaker activity next year than we currently are forecasting. We ... | 133 |
fomc | 1,995 | President Moskow. | 4 |
fomc | 1,995 | This gets back to Bob Parry's question about labor force participation rates and volatility. One of the changes that appears to have taken place in the labor market is this greater use of temporary workers or people who have less than permanent attachment to the workforce. I have two questions relating to this: One, is... | 119 |
fomc | 1,995 | To have an effect on the participation rate, these contingent workers would have to be moved in and out of the labor force. That could actually be occurring; so that could be a factor in some of the additional volatility. I think more typically folks are with some kind of temporary agency and would probably consider th... | 150 |
fomc | 1,995 | We have two of those firms in our District. We are working with them to get some data as well. | 22 |
fomc | 1,995 | Our staff has been working with yours. | 8 |
fomc | 1,995 | Good. | 2 |
fomc | 1,995 | President Hoenig. | 4 |
fomc | 1,995 | A quick question: In your answer to one of the earlier questions, you talked about inflation flattening out. I thought I read in the Greenbook that you were really somewhat more optimistic about inflation coming down somewhat. In your projections by quarter, you have a pretty significant decline. Yet, given where we ar... | 103 |
fomc | 1,995 | In my answer to President Forrestal, I was thinking more in terms of the kind of long-term inflation expectations that might be a factor in determining long-term interest rates rather than the quarterly pattern of our inflation forecast, which does have some deceleration. The deceleration is from a bulge earlier this y... | 185 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | Just following up on that question: I was struck by the fortuitous timing that you have in the Greenbook of the halt, if you will, of the one-time--although it seems to be a long time--decline in costs of benefits due to employer efforts and so forth. I am referring to the coincidence of that with our coming to a point... | 159 |
fomc | 1,995 | It wasn't exactly by design that we did that. We reached a point where the unemployment rate had dropped to the 5-1/2 to 5-3/4 percent level and we were expecting to see some pickup in compensation inflation. It just has not occurred. As we indicated in the Greenbook, we don't really see any reason yet for revising sig... | 346 |
fomc | 1,995 | We have this discussion once a month at our directors' table because our chairman is the president and chairman of New England Medical Center and because of the predominance of the health care industry in the First District. For at least the last two years, we have tried to get a handle, both from questioning on our si... | 135 |
fomc | 1,995 | That is just one reason for being somewhat cautious in looking ahead and thinking that somehow the entire medical care problem has been licked. There are still some significant issues about what is driving medical care prices and whether we are going through a transition period where employers are able to get a series ... | 101 |
fomc | 1,995 | Any further questions? If not, would somebody like to start the roundtable? President Hoenig. | 20 |
fomc | 1,995 | Thank you, Mr. Chairman. I will start with the District economy, which remains relatively strong and actually shows fewer signs of weakness than it did the last time we met. This firmer tone in the region's economy is evident across a wide range of indicators. The broadest gauge of improvement is that the District's em... | 502 |
fomc | 1,995 | President Moskow. | 4 |
fomc | 1,995 | For the most part, Mr. Chairman, changes in our outlook for the economy parallel those in the Greenbook, so I am going to focus my comments on developments in the Seventh District. Overall, it appears that District economic growth increased in the early stages of the third quarter. The inventory correction that slowed ... | 1,015 |
fomc | 1,995 | President Parry. | 4 |
fomc | 1,995 | Mr. Chairman, economic growth in the Twelfth District accelerated a bit in early summer after slowing earlier this year. A pickup in California is evident from strengthening retail sales, faster job growth, and a falling unemployment rate. Employment gains have been particularly large among California's manufacturers o... | 408 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | Thank you, Mr. Chairman. Overall, the New England economy can be characterized as moving sideways. It is not declining as it did earlier in the spring and summer, but it is not moving up markedly either. As in the past, there is considerable variation in employment growth among the states, with the northern states down... | 809 |
fomc | 1,995 | Thank you. President Boehne. | 8 |
fomc | 1,995 | Thank you, Mr. Chairman. Most of the recent anecdotal and statistical information suggests that economic growth is resuming in the Philadelphia District. Manufacturing, which has been a major drag, appears to be bottoming out and the outlook is positive. Retailers report the usual summer slowdown, but the underlying tr... | 270 |
fomc | 1,995 | President Forrestal. | 4 |
fomc | 1,995 | Mr. Chairman, after a brief pause earlier in the year, the expansion in the Sixth District has resumed. We see broad-based growth continuing for some time to come and this is partly due to continued migration to the region. This is a trend that shows very little signs of abating, and it is supporting economic performan... | 718 |
fomc | 1,995 | President McTeer. | 5 |
fomc | 1,995 | The Eleventh District continues to show modest overall growth with a noticeable flattening of employment growth in New Mexico and Louisiana being offset by slightly improving employment in Texas. High-tech industries like electronics, semiconductors, computers, and communications services, which are increasingly import... | 330 |
fomc | 1,995 | President Broaddus. | 5 |
fomc | 1,995 | At our board meeting a couple of weeks ago, Mr. Chairman, one of our directors summed up his comments on the local economic situation by saying that things were not as good as they had been, presumably back in 1994, but they were better than most people had expected when the economy began to slow earlier this year. I t... | 860 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Thanks, Alan. As in the nation as a whole, the Eighth District has experienced some slowing relative to 1994. That was expected because the District economy had been growing faster than could be sustained. The District unemployment rate was 4.7 percent in June, holding at about a percentage point below the national fig... | 704 |
fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | A general characterization of the District economy, I would say, is the feeling that it is as good as it gets. Certainly for the state of Ohio and for the part of Kentucky in our District, people would say that these are the best times that anyone can recall, and they would have a hard time imagining it improving over ... | 251 |
fomc | 1,995 | We take exception to the idea of an all-Ohio World Series. [Laughter] | 18 |
fomc | 1,995 | The industry- and sector-specific comments that we hear would not be significantly different from what Mike Moskow is reporting from the Great Lakes region. So, I am not going to go through them. But I will relay a couple of anecdotal reports of note related to motor vehicles and specifically trucks. One director comme... | 810 |
fomc | 1,995 | President Stern. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. The District economy remains healthy and activity generally has picked up over the summer. That pickup has been reasonably widespread across industries and regions of the District. There have been some further gains in employment. At the same time, labor does remain in relatively scarce supply.... | 413 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | Mr. Chairman, I want to take up Governor Blinder's question and Dave Stockton's answer regarding the risks in fiscal policy. This should not surprise you at all because fiscal policy is what I have talked about all year. I would like to start off with two observations. The first has to do with the level of deficit redu... | 2,024 |
fomc | 1,995 | Vice Chairman. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. The recently released data show no clear-cut trend in the Second District's economy. In the real estate sector, our contacts reported declines in existing home sales and home prices in the Greater New York City metropolitan area in July and August to date. In June, permits for construction of s... | 818 |
fomc | 1,995 | Used cars only or total? | 6 |
fomc | 1,995 | Prices for both. I really applaud the approach of the Greenbook. I think we have to be careful, especially in New York, not to fight the tape and to accept the fact that price performance is in fact better than we had thought it would be. On the other hand, it's a little early to declare victory, and therefore I applau... | 135 |
fomc | 1,995 | Governor Kelley. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. There is no doubt that the Greenbook is not exactly correct. It never is; it can't be and it's not expected to be. But that said, I think the staff did an exceptionally good job this time around in assessing what I see as a very tricky period. I find the economy that they project to be highly c... | 641 |
fomc | 1,995 | Governor Phillips. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. The inventory correction appears to be running its course and the adverse follow-on effects that we talked about at the last meeting do not appear to be about to beset us. The economy could well be set to resume its growth path at potential. Many of the areas of strength in the economy have bee... | 796 |
fomc | 1,995 | Thank you. Governor Blinder. | 7 |
fomc | 1,995 | Thank you, Mr. Chairman. After all the praise that the staff forecast has received, I am tempted to start by saying that I think they have it all wrong. But I don't actually, so I won't. I don't have any major quarrels with the Greenbook. I could differ with it a little bit here and there, but those differences are too... | 1,128 |
fomc | 1,995 | Governor Yellen. | 4 |
fomc | 1,995 | Thank you, Mr. Chairman. I think the news that has accumulated during the intermeeting period is almost entirely favorable with respect to the outlook, both for real performance and for inflation over the forecast horizon. While I, too, would like to find a reason to disagree with the Greenbook, I find myself in substa... | 612 |
fomc | 1,995 | Thank you. I assume we have coffee available at this stage. | 13 |
fomc | 1,995 | It's available. | 3 |
fomc | 1,995 | Mr. Kohn, you have the floor. | 10 |
fomc | 1,995 | Thank you, Mr. Chairman. As it turns out, my comments begin where the last two commentors left off. I'll be organizing my comments this morning around the real federal funds rate. [Statement--see Appendix.] | 44 |
fomc | 1,995 | Is there a particular reason why you use a one-year forward expectation of the price index deflator with overnight funds? | 23 |
fomc | 1,995 | First of all, I don't know what the overnight inflation expectation is. To make a guess about inflation over the short run, it's pretty reasonable to assume that people would look at inflation in the recent past, so we use a one-year backward-looking inflation measure. It does not give a significantly different result ... | 178 |
fomc | 1,995 | Except now, if you use a two- or three-month moving average, won't you get virtually a full percentage point higher? | 25 |
fomc | 1,995 | A full percentage point? I guess if you use the three-month moving average. | 16 |
fomc | 1,995 | What has the inflation rate been in the last three months? | 12 |
fomc | 1,995 | I would say 2-3/4 percent if I were going to guess. This has 3.1 percent built in. I am using the last 12 months. | 36 |
fomc | 1,995 | I understand that. You are not using the core rate; you are using the total CPI, is that right? | 23 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | The total CPI has averaged about .2 a month for the last three months. | 16 |
fomc | 1,995 | That's closer to a 2-1/2 percent rate, so it would be about 1/2 point perhaps. | 25 |
fomc | 1,995 | Any other questions for Don? | 6 |
fomc | 1,995 | Suppose your objective was to maintain nominal GDP in calendar 1996, and suppose on November 7th we got protracted, torturous messes on Capitol Hill and in the bond market. Suppose we got a contraction of government spending somewhere around 3/4 percent of GDP, and again it was messy in the bond market. Which would be ... | 107 |
fomc | 1,995 | The premise of the question is that somehow on a given day you knew the size of the shock and it was huge relative to GDP. So there was no uncertainty going forward about how long the shock would persist and what its size would be. | 48 |
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