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fomc | 1,996 | It's not just an Okun's Law transformation. It is a little more complicated in the way it is estimated. But it is conceptually quite similar. | 31 |
fomc | 1,996 | And what would it be showing right now? | 9 |
fomc | 1,996 | It would show a slight excess demand at this point. | 11 |
fomc | 1,996 | Yes, we are talking just several tenths of a percent, very much in line with our NAIRU. | 23 |
fomc | 1,996 | You mentioned that you are discounting recent increases in average hourly earnings and, I take it, in the employment cost index measure of wage gains. Why? | 31 |
fomc | 1,996 | For average hourly earnings, the charts that we look at are dramatic if we take the latest observation and think about it in terms of the 12-month change. We recognize that there was an odd reading a year earlier that will drop out when we get the next reading, and we would not be surprised to see the 12-month change m... | 208 |
fomc | 1,996 | Mike, did you get a confirmation on the chain-weighted average hourly earnings calculation? Has it come in? | 22 |
fomc | 1,996 | I was told that we would be trying to get that, but I have not heard anything. | 19 |
fomc | 1,996 | I think you ought to point out that the BLS does calculate a chain-weighted average hourly earnings index that endeavors to take out the inter-industry effects of approximately 300 to 400 industries. Unless that calculation is done inappropriately, it shows an actual diminution instead of an acceleration over the last ... | 151 |
fomc | 1,996 | What we are anticipating might yield a considerable narrowing of the gap between the recent levels of those two measures. I guess I would characterize that chain-weighted measure as having moved pretty much in a sideways channel over the last year as opposed to an upward sloping channel. I still think the regular avera... | 119 |
fomc | 1,996 | Doesn't that depend on the relationship between individual wages and individual productivity? The reason is that if there is a fixed relationship between any individual wage and the productivity level, then a change in wages will be associated with a comparable shift in productivity, and unit labor costs will be invari... | 91 |
fomc | 1,996 | Again, we have not explored this in great depth but the concern might be that, in the cyclical experience, one sees these changing weight measures as tending to accelerate, perhaps as an early signal of the broader pressures in the labor market. So, I think it's worth looking at all these measures, and certainly that c... | 84 |
fomc | 1,996 | That second-quarter ECI will certainly be a very interesting piece of information. It looks as though it is calculated unambiguously in an appropriate manner. | 30 |
fomc | 1,996 | Well, there are a lot of definitional problems, and I suspect some firms that have to fill out that form are confronted with a real challenge in sorting through the instructions. | 35 |
fomc | 1,996 | I have a question about the role of the stock market in the forecast. It seems to me that it has some important role in the slowdown scenario in two ways. One, am I correct that you have not passed through the full wealth effect of the stock market rise relative to what the models would suggest? | 61 |
fomc | 1,996 | One can reach that conclusion. One has! [Laughter] | 13 |
fomc | 1,996 | As you know, I have done the same thing, so I can sympathize with that. You are leaning a little against the wealth effect relative to the historical regularity. | 35 |
fomc | 1,996 | I think that's right. | 5 |
fomc | 1,996 | Secondly, on top of that you have a mild stock market correction built in. | 16 |
fomc | 1,996 | That's right. | 3 |
fomc | 1,996 | How "mild" is the mild correction? | 10 |
fomc | 1,996 | About 5 percent from where we were as of last night. | 13 |
fomc | 1,996 | I would take it the source is twofold. To what extent does it depend on your judgment that the current market is high relative to fundamentals, and to what extent is it driven by expectations of an earnings slowdown? | 43 |
fomc | 1,996 | On the latter point, it is not at all clear as we look at various reports of analysts' expectations that our profit forecast is really lower than what is anticipated in the market now. So, that leads me to characterize this expectation as being in essence some faith in gravity. We have a feeling that the market has bee... | 144 |
fomc | 1,996 | I think gravity is underappreciated in economic forecasting! | 12 |
fomc | 1,996 | Usually it doesn't work when you expect it to, either. So, the fact is that the market, as of last night, is significantly above where we though it might be just a couple days before. In the last half year or so we have consistently had to raise our stock market forecast in the Greenbook. | 63 |
fomc | 1,996 | Any further questions? If not, who would like to start the roundtable? Mr. Broaddus, go ahead. | 25 |
fomc | 1,996 | Thank you, Mr. Chairman. I will try to keep this brief in the hope that you might give me one or two extra minutes when we come around to the discussion of our longer-term policy strategy. Really one or two minutes is all I want. | 51 |
fomc | 1,996 | Will you take seven-eighths? | 8 |
fomc | 1,996 | Let's negotiate! On balance, the anecdotal reports and surveys that we have been looking at for our District suggest a more rapid pace of expansion over the last several weeks. To mention a few of the high spots, commercial real estate activity seems to be almost uniformly robust throughout our region, and sales of bot... | 560 |
fomc | 1,996 | President Parry. | 4 |
fomc | 1,996 | Mr. Chairman, recent economic growth has accelerated in California and to some extent in the remainder of the District. Job growth has remained strong in Oregon and has picked up further from already high rates in Nevada, Utah, and Idaho, leaving those four states the fastest growing in the nation. In several District ... | 554 |
fomc | 1,996 | The one you have there is not the one you are forecasting? | 13 |
fomc | 1,996 | That is not what I am forecasting, right. | 10 |
fomc | 1,996 | President Moskow. | 4 |
fomc | 1,996 | Thank you, Mr. Chairman. Like the Greenbook, we are close to the consensus forecast that sees real GDP growth moderating over the balance of 1996 and into 1997. We, too, see the risks on the up side. Our forecast for auto and light truck sales this year and next is quite similar to that in the Greenbook, and that forec... | 956 |
fomc | 1,996 | President Minehan. | 4 |
fomc | 1,996 | Mr. Chairman, the New England economy continues to chug along, though I am struck by the moderate nature of the data versus some of the heat we sense in the economy from the anecdotal reports of our outside contacts and groups that visit the Bank. My comments will be based both on the data from the region and what we h... | 1,013 |
fomc | 1,996 | President Boehne. | 5 |
fomc | 1,996 | Thank you, Mr. Chairman. The Philadelphia District economy is growing at a moderate pace, and virtually all sectors are sharing in the growth. That is an improvement over conditions last year and early this year. Still, the region lags the performance of the nation, and that is not likely to change in the foreseeable f... | 274 |
fomc | 1,996 | President Hoenig. | 4 |
fomc | 1,996 | Mr. Chairman, the economy in our District continues to grow at a relatively strong pace, with gains spread broadly across most of our industries. Manufacturing and construction remain major sources of strength in our region. Factory jobs in the District rose again in April, and industry contacts indicate that productio... | 479 |
fomc | 1,996 | President McTeer. | 5 |
fomc | 1,996 | The Eleventh District economy is doing very well. Employment grew at a rate of about 4 percent in April and May, and most observers do not expect much slowdown in the second half. For reference, our long-term employment growth trend is around 3 percent. On the negative side, the mantra in Texas is still "eat beef and p... | 844 |
fomc | 1,996 | President Guynn. | 4 |
fomc | 1,996 | Thank you, Mr. Chairman. The Southeast economy continues to grow moderately, slightly outperforming the nation by almost all measures. Georgia and Florida particularly are doing extremely well. Although much of that can be attributed to the Olympics, the District would still be performing quite well even without the Ol... | 865 |
fomc | 1,996 | President Melzer. | 4 |
fomc | 1,996 | Thanks, Alan. The pace of economic activity in the Eighth District continues to pick up from the more sluggish levels I mentioned earlier in the year. District retailers and auto dealers report sales at or above last year's levels, and most contacts are optimistic about sales prospects over the summer, though there is ... | 1,062 |
fomc | 1,996 | President Stern. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. The regional economy continues to do well. Most sectors are healthy. Construction in particular is strong, housing is very strong, and home prices are rising significantly. Those conditions have prevailed for quite some time now, and I won't elaborate. Exceptions to this generally favorable set... | 540 |
fomc | 1,996 | Vice Chairman. | 3 |
fomc | 1,996 | Mr. Chairman, for the last three years I have been reporting on the economy of the Second District in rather dismal terms, and I am now changing from a minor to a major key. The Second District economy has been accelerating in recent weeks and the reason is that the District is amazingly dependent both economically and... | 909 |
fomc | 1,996 | President Jordan. | 3 |
fomc | 1,996 | I will begin by saying that we seem to have "weathered" another price scare in agriculture. At the May meeting, I reported on the wet conditions that were panicking the farmers in our area. Many had sold crops that they had not yet planted, and because of the adverse weather conditions the day was getting very close wh... | 1,835 |
fomc | 1,996 | Governor Lindsey. | 3 |
fomc | 1,996 | I think these semiannual meetings are best used to assess whether there are any major trends that have surprised us. There are two that have surprised me: consumer debt and public policy. I will restrict my comments to consumer debt. I think the consumer situation is best summed up by the old labor ballad about "anothe... | 2,086 |
fomc | 1,996 | Governor Kelley. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. At the last meeting, I observed that I thought we were entering a watershed period. I believe that we are now in that period, although I think it is too early to tell just which way the water is going to fall when it falls. Certainly at this time, we have an economy with a good head of steam. M... | 922 |
fomc | 1,996 | Governor Phillips. | 3 |
fomc | 1,996 | Thank you, Mr Chairman. The moderate growth story that we have been talking about certainly seems to be playing out. The second-quarter information looks generally strong, and indeed most of the members around the table have ratcheted up their growth projections. The difficult question before us is to what extent the s... | 1,079 |
fomc | 1,996 | Governor Yellen. | 4 |
fomc | 1,996 | Thank you, Mr. Chairman. I will try to be brief because, like President Broaddus, I would like to take a little extra time in our next go-around concerning price objectives for monetary policy. The key questions today are identical to those at our last meeting. Will aggregate demand really moderate in the second half o... | 912 |
fomc | 1,996 | Governor Meyer. | 3 |
fomc | 1,996 | Thank you, Mr. Chairman. During the last couple of months, I have had plenty of time to anticipate my participation [Laughter] in the discussion around this table, and I am delighted finally to have this opportunity. | 45 |
fomc | 1,996 | We welcome you. | 4 |
fomc | 1,996 | Thank you. It is nice to begin by finding myself in such strong agreement with the staff forecast, both in anticipation of a slowing toward trend immediately ahead and in appreciating upside risks in the current environment. Now this agreement is both pleasing and disappointing at the same time. I am pleased on the one... | 1,381 |
fomc | 1,996 | Governor Rivlin. | 4 |
fomc | 1,996 | I have been on the job exactly five days, so I am not going to say a great deal, in part for that reason and in part because an awful lot has already been said with which I agree. But I think you will have to admit that Larry and I chose a remarkably good time to join the Federal Reserve and the FOMC. This is the most ... | 546 |
fomc | 1,996 | Thank you all. Shall we adjourn for coffee? When we come back, we can talk about long-term inflation. | 24 |
fomc | 1,996 | The next item on our agenda--the issue of long-term inflation goals--is something that we have been discussing on and off for a long while, and I think we will continue to do so. It is important that we move forward on this issue and more specifically that we agree on what the goals mean before we can find some consens... | 442 |
fomc | 1,996 | I will apologize in advance, since my comments are a little on the long side. I would like to begin by summarizing my views and then run through a mini cost-benefit analysis of the welfare consequences of a permanent reduction in inflation. To preview my conclusions, I think we should move to lower inflation but ginger... | 651 |
fomc | 1,996 | Excuse me, that 6 percent is real interest rates? | 13 |
fomc | 1,996 | Right. If you like, you can vary the assumptions. | 12 |
fomc | 1,996 | No, it's just that you did not specify. | 10 |
fomc | 1,996 | I'm sorry; I am thinking of real rates. So one would need a little over 1/10 percent to about 1/4 percent of GDP as a net gain per point of inflation reduction to justify that type of investment. The question is, from whence might such benefits accrue? In the interest of time, I want to focus on only the things I consi... | 763 |
fomc | 1,996 | What is the productivity growth level? | 7 |
fomc | 1,996 | Productivity growth is placed at the current 1 percent level. An aversion on the part of firms to impose these desired nominal wage cuts results in higher permanent rates of unemployment. As the numbers I just cited would suggest, the impact of resistance to nominal wage cuts on permanent unemployment is highly nonline... | 1,053 |
fomc | 1,996 | Al, may I respond to this just for a minute? | 12 |
fomc | 1,996 | Absolutely. I do not really have a response, just a comment. | 14 |
fomc | 1,996 | We have an argument that is very well put together. In an unusual way, what you have documented is one of the necessary conditions for price stability, which is accelerated productivity. | 35 |
fomc | 1,996 | I agree with that. | 5 |
fomc | 1,996 | But let me go further. I must admit that several years ago I raised this hypothesis with our staff colleagues and had them take a look at what happens to productivity as the inflation rate moves toward zero. Lo and behold, they got a reasonably good correlation that unfortunately disappeared to a large extent when the ... | 258 |
fomc | 1,996 | I would agree with your conclusion that we need higher productivity growth, but I have not seen any evidence that convinces me that we would get it. But certainly if we did get it, or if productivity growth were higher, it would be easier by an order of magnitude to live with price stability. | 60 |
fomc | 1,996 | We do see significant acceleration in productivity in the anecdotal evidence and in the manufacturing area where our ability to measure is relatively good. We can see that acceleration if we look at individual manufacturing industries. It is our macro data that are giving us the 1 percent productivity growth for the co... | 74 |
fomc | 1,996 | One could argue that we have roughly a 1 percent bias in the CPI so that right now we have, say, 2 percent productivity growth and 2 percent core inflation. | 36 |
fomc | 1,996 | We have not had such productivity growth for long. | 10 |
fomc | 1,996 | Such productivity growth would mean that we are living successfully with 2 percent inflation. | 16 |
fomc | 1,996 | That is exactly the point. That is another way of looking at it. | 15 |
fomc | 1,996 | Because productivity growth is really higher than we have measured it. | 12 |
fomc | 1,996 | In fact there is obviously an exact, one-to-one tradeoff. That is, we can reach price stability either by driving down the inflation rate and getting productivity to bounce up or by revising down the inflation figures and producing higher productivity! [Laughter] | 52 |
fomc | 1,996 | I am perfectly happy with the last view. | 9 |
fomc | 1,996 | Al. | 2 |
fomc | 1,996 | This is a big and broad issue. Janet has approached it one way. I am going to approach it a somewhat different way rather than try to respond in detail to her comments, which I thought were very interesting and constructive. For some time now, we have had these monetary aggregate ranges under the Humphrey-Hawkins proce... | 1,639 |
fomc | 1,996 | Principled opportunism. | 5 |
fomc | 1,996 | Or deliberate moderation. | 4 |
fomc | 1,996 | If we are going to get anywhere, we can't have people literally talking at cross purposes. Janet, you did not even accept the premise with which Al is starting, that everyone agrees that we should seek price stability as a goal. If we are going to get anywhere, the question I have to ask first is whether you agree with... | 128 |
fomc | 1,996 | I would simply respond to that by saying that the Federal Reserve Act directs us to aim for both maximum employment and price stability. To the extent that there is no tradeoff at low inflation rates and there are benefits that outweigh the short-run costs, then price stability, literally zero inflation, is good and we... | 106 |
fomc | 1,996 | So, you are discussing the issue of the transition, not the ultimate goal? | 16 |
fomc | 1,996 | No, I am discussing the issue of the ultimate objective. If we have to pay a permanent price at zero measured inflation in the form of permanently less employment and higher unemployment, I do not read the Federal Reserve Act as unambiguously telling us that we should choose price stability and forego maximum employmen... | 61 |
fomc | 1,996 | The Humphrey-Hawkins Act says that we should have 3 percent adult unemployment. That is the law of the land. | 26 |
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