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fomc | 1,996 | Except for its impact on the export markets, wheat has essentially become disassociated from the rest of the economy, whereas corn is a major input into the food chain--actually, corn, soybeans, and soybean meal. Wheat used to be a key factor twenty or thirty years ago, but it isn't any more. | 63 |
fomc | 1,996 | That underscores again that, while we know something about a good chunk of this year's wheat crop, we know very little about the corn and soybean crop outlook. We are making a bet, and the markets are making a bet. We are pretty much in line with the markets, but there is going to be a lot of volatility and we are not ... | 123 |
fomc | 1,996 | It's probably good for the farm incomes of our wheat growers when they produce a crop, but it isn't good for manufacturers of combines! President Stern. | 29 |
fomc | 1,996 | Thank you. Mike, one of the themes that came through in the Greenbook, and you alluded to it briefly today, is the deterioration in inflationary expectations. You seem to think that inflationary expectations are going to rise, and I would like you to elaborate a little on that. It seems to me that one could tell a stor... | 128 |
fomc | 1,996 | I think that's important whether it's a formal COLA--and COLAs are much less important in the economy today than they once were--or an informal process, in the sense that employers are conscious of what is happening to the cost of living and have some sort of behavioral norms for adjusting wages in light of changes in ... | 279 |
fomc | 1,996 | So it is a sort of preservation of real wages story? | 12 |
fomc | 1,996 | That's the most direct driving force. | 7 |
fomc | 1,996 | I gather that you think it's consistent with historical experience; we have had these kinds of shocks before. | 20 |
fomc | 1,996 | As best one can judge, yes. | 8 |
fomc | 1,996 | President Moskow, I'm sorry, I interrupted you. Did you have a follow-up? | 18 |
fomc | 1,996 | I just wanted to make sure that the econometric model did take into consideration the reduction in the percentage of processed food costs that is accounted for by grain costs. | 32 |
fomc | 1,996 | The model estimated with data from 20 years ago showed a 30 percent farm value in the CPI for food prices. That value is about 17 percent now, so we have made some allowance in the model's coefficients for the decline in the weight of farm grain prices. | 55 |
fomc | 1,996 | Thank you. | 3 |
fomc | 1,996 | President Minehan. | 4 |
fomc | 1,996 | Mike, turning from this supply shock to the underlying demand, you did mention a number of factors that you put into your projections that acted to damp demand. I was struck by how stable unemployment stays through 1997, granted that you are projecting growth that is a little higher than in 1995. Could you talk a littl... | 75 |
fomc | 1,996 | I take it that you are suggesting that we take as given the projected output path and look beyond that. The year 1995 is still something of a mystery. We had essentially stable unemploy-ment in the face of very low GDP growth. One possibility is that GDP growth was mismeasured. One hint that we have, and have mentioned... | 318 |
fomc | 1,996 | Maybe it's just the tone of the Greenbook, but given the feel of the underlying strength of demand in the Greenbook I was surprised to see this stability. | 32 |
fomc | 1,996 | I think that brings you back then to the question of whether demand really will slacken as quickly and as much as we have in the forecast. I indicated that a number of assumptions about the behavior of various sectors underlie that forecast. These really have not changed in our view. Our basic view has been that we don... | 309 |
fomc | 1,996 | I think we should emphasize what you said, Mike, only if the relationship between the unemployment rate and the potential rate of operations of the economy as a whole were very tight. The data show that that is not the case. That's because the measurement problems that we have in all these statistics are fairly large a... | 107 |
fomc | 1,996 | We recognize that, because we have a new current population survey that has been in place for only a short time, the short-run movements are very difficult to assess. The seasonal factors could have changed, and we don't have enough evidence on what they are doing. So, we need to take these numbers with a grain of salt... | 66 |
fomc | 1,996 | Governor Lindsey. | 3 |
fomc | 1,996 | You mentioned that GDP on the income side was almost a full percent higher. Where do you suppose the big surprise comes from? | 25 |
fomc | 1,996 | Well, I can't say that there is a surprise that I can point to. I suppose that relative to our forecast one thing that happened last year was that we got a lot of growth in profits. We don't see that as out of line with corporate profit reports, but, certainly, as things evolved last year that was one factor that was a... | 125 |
fomc | 1,996 | I was thinking about the report on the Treasury balances that was mentioned earlier and why those balances are higher. Back in the old days, I would have said that the reason is the realization of capital gains because that doesn't show up on the income side. So you are saying that there is something else. | 60 |
fomc | 1,996 | That is something that might be noted about our forecast. In essence, disposable income is currently being reduced by the capital gains taxes that we think are probably a significant factor in the heavy tax revenues, and yet that does not show up in income. | 49 |
fomc | 1,996 | What it may suggest is that manufacturers appear to keep their books internally consistent on the income and the product sides. When we look at services, however, what we see are very considerable anomalies: a fairly small increase in productivity and reasonably slow nominal output growth, but a significant increase in... | 266 |
fomc | 1,996 | Mr. Truman expresses his opinion perfectly; he does it with a nod. | 15 |
fomc | 1,996 | I can measure his approval rating in the arc of his nod! [Laughter] Any further questions? | 21 |
fomc | 1,996 | This may be related to the line of thunderstorms coming from the west and everyone wanting to get out of here. | 22 |
fomc | 1,996 | If you had said that at the beginning, I would not have filibustered as much as I did. Who would like to start the Committee's discussion? President Parry. | 37 |
fomc | 1,996 | Mr. Chairman, our monthly indicators model suggests that economic growth in the current quarter should be close to that in the first. We believe that this relatively high growth rate is temporary because it reflects the building of inventories by business firms. Thus, we see the economy slowing toward its long-run grow... | 686 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | Mr. Chairman, the available information on the Seventh District economy is consistent with moderate growth in the region. In general, manufacturing is still our strongest-performing sector with growth somewhat faster than the national average. Housing and retail sales have continued to perform reasonably well despite h... | 994 |
fomc | 1,996 | President McTeer. | 5 |
fomc | 1,996 | On balance, the Eleventh District economy has been experiencing moderate growth and the near-term prospects look reasonably good. Employment growth in the first quarter was about the same as nationally, but growth accelerated throughout the quarter. Real estate and construction have tended to be among the strongest seg... | 518 |
fomc | 1,996 | President Minehan. | 4 |
fomc | 1,996 | Mr. Chairman, economic conditions in New England are quite favorable, though many of our business contacts describe the situation as continuing to be highly competitive and tough. Employment grew at a rate of about 1-1/2 percent last year and in the first quarter of 1996, slightly less than the pace for the nation but ... | 684 |
fomc | 1,996 | President Guynn. | 4 |
fomc | 1,996 | Mr. Chairman, the Southeast has continued to grow moderately this spring, led by strong and broad-based activity in two of our states, Georgia and Florida, where over half of our District's income is generated. Employment growth in the District has been at a rate of almost 3 percent so far in 1996, nearly double the na... | 843 |
fomc | 1,996 | President Hoenig. | 4 |
fomc | 1,996 | Mr. Chairman, the Tenth District economy continues to grow at a strong pace with most indicators pointing to little change since our last meeting. Recent employment reports show that the number of jobs in the District grew again in March and that employment in all seven of our states is growing at rates above the natio... | 606 |
fomc | 1,996 | President Boehne. | 5 |
fomc | 1,996 | Thank you, Mr. Chairman. Economic activity in the Philadelphia region is showing signs of improvement across a wide range of sectors including manufacturing, retailing, and construction. Growth is uneven across the District, however, and overall the region lags the rest of the country. I would still categorize the over... | 376 |
fomc | 1,996 | President Broaddus. | 5 |
fomc | 1,996 | Thank you, Mr. Chairman. At the District level, the overall picture has not changed a lot since our last meeting. Our regional economy is still growing at a moderate to moderate-plus pace, and I would say that growth is occurring pretty uniformly throughout the District. Also, increasingly we see signs that the level o... | 948 |
fomc | 1,996 | Isn't that more the result of a shift away from the expectation that they are going lower? | 19 |
fomc | 1,996 | Certainly, it is partly that, but if you look at the-- | 14 |
fomc | 1,996 | If you look at the actual pattern of forward rates, going from overnight out to a couple of years, what happens is that if the long-term rate moves the way you said, the other rates move back up. According to the analysis in the Bluebook, it is difficult to determine whether the term structure at this stage is reflecti... | 95 |
fomc | 1,996 | Well, I think both elements probably are involved. If you look at the first chart in the Bluebook, the middle panel there, I am trying to draw an inference from that. What it suggests to me at least is that expectations for short rates may be pretty flat through, say, the third quarter, but after that, if one looks at ... | 90 |
fomc | 1,996 | I agree with that. I am just saying that it is very difficult to differentiate the extent of the rise from what we think we know about the liquidity premium. It is probably right that it is slightly more than the latter, but the major shift has to be coming up from the bottom. | 58 |
fomc | 1,996 | Well, I would certainly agree that it is always difficult to read the term structure and draw precise inferences from it. We tried to look at this pretty carefully, and as I look at the entire structure, it seems to suggest that general expectations--and I think this has been confirmed in some of the documentation--are... | 170 |
fomc | 1,996 | That is an interesting hypothesis, but I think you would have a tough time debating it. | 18 |
fomc | 1,996 | I have a tough time in all debates, but I would still be willing to debate this! [Laughter] In any case, I think it raises some questions about whether holding short-term rates relatively constant over the remainder of the year is going to get us where we need to go, or whether we need to consider something stronger. | 67 |
fomc | 1,996 | That is definite but that conclusion can arise independently of the yield curve! Let me say, parenthetically, that Don Kohn said to me the other day that these meetings were getting duller and duller and I was worried that he might fall asleep, so I tried to liven things up a bit. [Laughter] | 66 |
fomc | 1,996 | I will try to help keep him awake as much as I can! [Laughter] | 18 |
fomc | 1,996 | President Melzer. | 4 |
fomc | 1,996 | Thanks, Alan. The pace of economic activity in the Eighth District appears to have increased modestly since our last meeting. For the three months ended in March, District labor markets remained tight. The average unemployment rate is below 5 percent, and it has been that low for a large part of the last year and a hal... | 721 |
fomc | 1,996 | President Stern. | 3 |
fomc | 1,996 | Thank you. In the Ninth District, while there was some pause in growth earlier, activity has once again picked up. Most of the news has been on the positive side, and I would say that the regional economy is now advancing more strongly than I, certainly, expected just a few months ago. To give you a flavor of some of t... | 431 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | This is the first time that I have been the first of the governors to comment. This is amazing; maybe I'll master the timing of this process eventually! I have been staying with the story of moderate growth for a number of meetings, and I am beginning to bore even myself. But I do think there is now a bit more certaint... | 790 |
fomc | 1,996 | Governor Kelley. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. I believe we may just now be entering a very tricky and important period. The Greenbook shows a very near-term deceleration in GDP growth to a 2 percent annual rate. Despite that, the staff foresees, as do many others here, an inflationary creep even without a minimum wage bill. If we get that ... | 666 |
fomc | 1,996 | Governor Yellen. | 4 |
fomc | 1,996 | I would like to comment on two issues central to the national economic outlook: first, the possibility that aggregate demand growth will exceed trend over the forecast period, pushing the economy well beyond potential; and, second, the prospect that core inflation will begin to drift upward even if the economy continue... | 1,462 |
fomc | 1,996 | Thank you. Vice Chairman. | 6 |
fomc | 1,996 | Thank you, Mr. Chairman. The broad economic indicators suggest that the economy in the Second District grew at a moderate pace in recent weeks, which is an improvement. In March, payroll employment advanced at an annual rate of 2.2 percent in New York and 3.3 percent in our part of New Jersey. Vacancy rates for prime c... | 693 |
fomc | 1,996 | It might have stirred up a storm! President Jordan. | 11 |
fomc | 1,996 | The most noticeable change since the last meeting has been orange construction-site barrels sprouting all over the Great Lakes region. Infrastructure construction is in full swing. It was explained to me recently that Cleveland in particular has been benefiting greatly from such construction. That is because, while Atl... | 305 |
fomc | 1,996 | It is already May 21! | 7 |
fomc | 1,996 | Well, people are saying that there will be no corn harvest in our area, but I am not so sure about that. Others are telling us that the Amish do not have any problem; their horses are not slowed down by the rain. The stories also are very negative regarding the nationwide wheat and corn crops, and that carries over to ... | 796 |
fomc | 1,996 | Governor Lindsey. | 3 |
fomc | 1,996 | I have not been here since the last meeting for all intents and purposes, so I don't really have anything to say about the U.S. economy. But I find this discussion very informative and useful. Where I have been, I must say, makes me appreciate coming home. It is very depressing to live and work in Washington because it... | 820 |
fomc | 1,996 | Coffee is available. Shall we break? | 8 |
fomc | 1,996 | Mr. Kohn. | 5 |
fomc | 1,996 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,996 | Is the question whether we respond to that forecast horizon issue now or at a later time? | 18 |
fomc | 1,996 | Whenever. It would be nice to have a little discussion at this meeting. Whether you want to do it after you have discussed the near-term policy choices-- | 31 |
fomc | 1,996 | Why don't we do that? Why don't we complete the near-term policy discussion and then come back to that issue and conceivably continue to discuss it during the lunch period if that turns out to be necessary. | 42 |
fomc | 1,996 | That's fine. | 3 |
fomc | 1,996 | Any questions for Don? Clear as always. I think this is indeed a watershed period, as Governor Kelley mentioned. As I listened to the members' comments relating the current situation to the Greenbook forecast and the staff briefings, I came to a few conclusions that I hope characterize the substance of what we have bee... | 2,005 |
fomc | 1,996 | Mr. Chairman, I would like to concentrate on the part of your presentation relating to what we don't know. It is clear that we don't fully understand what appear to be some new relationships in the economy affecting the connection between the real economy and the inflation rate. And because I think that the present sta... | 396 |
fomc | 1,996 | President Melzer. | 4 |
fomc | 1,996 | Thanks, Alan. I was not very successful when I talked about this insurance policy concept before, but I am going to venture into that territory one more time and then probably leave it at that. In my view, we in effect took out an insurance policy in January. In retrospect we did not need it, and I think now is the tim... | 278 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Mr. Chairman, as it turns out I want to talk about insurance policies as well. I believe that it would be wise to tighten policy at this time. We cut the rate in January because an apparent moderation in growth was reducing inflationary pressures and because we wanted insurance against the risk that the economy might w... | 261 |
fomc | 1,996 | President Broaddus. | 5 |
fomc | 1,996 | I agree strongly with Tom Melzer and Bob Parry and I am sure that will not surprise anybody. I guess my views on policy at this stage are predicated on a couple of things, Mr. Chairman. First, the long-term goal is price stability. The staff is now projecting an increase in the inflation rate next year. I think it is a... | 417 |
fomc | 1,996 | President Hoenig. | 4 |
fomc | 1,996 | Mr. Chairman, I would prefer that we tighten now. I think we have consistently underestimated the strength of the economy over the last several months and earlier, going back to last fall. We are looking for the economy to continue to be strong. We are no longer talking about capping inflation. We are talking about see... | 131 |
fomc | 1,996 | President Minehan. | 4 |
fomc | 1,996 | I am going to continue the revolt of the nonvoters! [Laughter] As I indicated before, I think we clearly have moved from a period of balanced risks to risks on the up side. The risks of increasing rates of inflation seem significant both from supply shocks and from demand factors. It may be that rising long-term intere... | 336 |
fomc | 1,996 | President Stern. | 3 |
fomc | 1,996 | As I think about the economy and how it is likely to perform from here, my suspicion is that housing still has some momentum that will carry it beyond the next quarter or two. That would also be my judgment about capital spending. As far as the consumer is concerned, I do not doubt the significance of the wealth effect... | 421 |
fomc | 1,996 | Symmetric or asymmetric? | 5 |
fomc | 1,996 | I prefer symmetry on philosophical grounds. | 7 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | I think that if people outside this room who pay close attention to these matters saw the Greenbook inflation forecast for this year and next year and heard some of the comments and concerns that people around this table have expressed about the inflation outlook, we would be sending a very bad message by not taking ac... | 412 |
fomc | 1,996 | President Boehne. | 5 |
fomc | 1,996 | Several issues have been talked about around the table, and in the end people have to make their own judgments. With regard to the issue about the economy and the structure of the economy, most of the models, which I think the Greenbook reflects, clearly indicate that we should have had accelerating inflation over the ... | 506 |
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