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fomc
1,996
That is based primarily on the observation that the incoming money growth data are a little weaker than we had anticipated.
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You have to have a budget constraint and central bank money in your framework, so you are telling me that velocity growth is going to be higher. I don't see how that follows from this linkage.
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What we assume is that monetary growth will accommodate the maintenance of a nominal funds rate in the face of the growth of aggregate demand.
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The way we go about this is entirely endogenous. As you know, a nominal interest rate, particularly one that is the Committee's target, is not a nominal anchor. I think that the process that Mike described is exactly what went on.
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President Parry.
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Mike, revisions in the Greenbook forecasts prepared for recent meetings have been quite small. But I think they have been in the direction of raising the rate of inflation and to some extent, I guess, the level of real GDP. In light of that, could you comment on the likelihood that the slowdown during the forecast peri...
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We do not think there is enough of a slowdown in our forecast to relieve inflationary pressures. Basically, what we see is that the evidence on wage behavior in the first half of this year supports the view that we are operating at a level of resource utilization that is incompatible with maintenance of a steady rate o...
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The change in the forecast in the last couple of meetings and some of the comments in Part I of the Greenbook, which I must admit I found striking, seem to suggest that you see the prospects of a more favorable outcome as probably lower now than you did at the time of the previous meeting or the meeting before that.
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I think our confidence in our assessment of the implications of this level of resource utilization has grown with the latest wage figures.
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I see. Thank you.
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President Moskow.
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Just getting back to the potential for a strike, someone in the auto industry described this period to me as the calm before the storm since nothing really happens until later this week when a target is selected. The key issue, of course, is outsourcing for General Motors. They manufacture a lot more parts themselves, ...
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President Stern.
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Mike, I agree with your characterization of the productivity data, but I think the business community would take sharp exception to it. Everywhere I go they talk about the tremendous productivity improvements that they are achieving. I must say that I am increasingly uncomfortable about our ability to reconcile the two...
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I've observed what you well know, that the data certainly are supportive of the notion that there has been in the past couple of years a continued quite rapid improvement in productivity in manufacturing. We get reports from business executives that they can produce as many widgets now as they did a few years ago with ...
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Thank you.
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Are there any further questions for Mike? If not, would somebody like to start the Committee discussion? President Hoenig.
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Mr. Chairman, the economy in the Kansas City District, like other parts of the nation, has slowed, in our case from a very strong to a still strong rate of growth; it just is not as strong as it was a few months ago. Our directors confirm the positive tone in the region's economy, with many reporting healthy gains in b...
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President Broaddus.
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Thank you, Mr. Chairman. The Beigebook summary this time starts off with a statement that the national economy continued to expand in June and July, but it points out that there was some slowing in some areas and in some sectors. I think that characterization describes reasonably well what is going on in our region. Th...
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President Moskow.
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That is a hard act to follow! [Laughter] The Seventh District economy is still operating at very high levels, but it is expanding at a slower pace than in the first half of the year. Housing starts and permits increased rather sharply in the Midwest in July and partly made up for weather-related delays that we experien...
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President Parry.
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Mr. Chairman, economic growth is strong in the Twelfth District. In California, job growth picked up noticeably in the second quarter, and the unemployment rate fell about 1/2 percentage point. In July, the California unemployment rate edged down further, and payroll jobs continued to expand at about the second-quarter...
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President Minehan.
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Mr. Chairman, while the economy may be slowing somewhat nationally, that is a bit hard to see in New England right now. Job growth is steady, unemployment rates in the region are low--a full percentage point below the nation--and pressures in the job markets are growing as employers find it hard to hire skilled and in ...
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President Boehne.
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The economy in the Philadelphia District appears to be on a modest uptrend that has tilted down from a somewhat faster pace earlier in the year. Manufacturing is growing but at a somewhat slower pace. Delivery times, while lengthening in the spring, have shortened more recently. Retail sales growth, quite healthy in th...
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President Guynn.
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Thank you, Mr. Chairman. The economy of the Atlanta District remains moderately strong. The big news over the last six weeks, to no one's surprise I'm sure, has been the impact of the Olympics. Some businesses in Atlanta and other Southeastern cities were somewhat disappointed by the spillover effects. In general, the ...
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President McTeer.
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The economy in the Eleventh District has remained on a firm uptrend throughout the summer. Conversations with our directors and other contacts suggest continuation of more of the same, with some minor slowing during the remainder of the year. There are two and possibly three areas of weakness in the District economy. F...
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President Melzer.
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Thanks, Alan. Tight labor markets continue to be the rule in the Eighth District. The District unemployment rate was less than 5 percent in both the first and second quarters, the lowest since the 1970s. The strike of 6,700 McDonnell Douglas machinists that began June 5 remains unsettled. The company has maintained out...
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President Stern.
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Thank you, Mr. Chairman. The District economy remains healthy. I have been impressed most recently by strength in many of the natural resource industries. Labor markets continue to be tight and if anything they have tightened a bit further. They are so tight in fact that my kids have found jobs! [Laughter] As far as th...
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Do you have any idea what the order of magnitude might be?
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No. I really do not.
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These involve 15 or 16 percent interest rates?
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No, not on the teaser rates. These are 5.9, 6.9, 8 percent rates, and they are available without any effort. Applications just show up in the mail.
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By using these cards, small companies can offset considerable expenses that they otherwise may have. For example, a small business may previously have had credit cards that were being charged to the company's account and may have incurred sizable clerical costs to reconcile the charges and various business expenses. Di...
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It sounds like a decisively sound business practice! Vice Chairman.
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Thank you, Mr. Chairman. At the last meeting I reported that the Second District economy had been expanding rather rapidly. It has continued to expand but at a somewhat slower pace in recent weeks. From May to June, the growth of payroll employment decelerated from 2.1 to 1.4 percent in New Jersey and from 2.1 to 0.1 p...
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President Jordan.
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Thank you. I had been thinking fairly positively, feeling pretty good, about things since our last meeting in early July. Then, over the weekend, I got a call from my tenant in Los Angeles who said he had lost his job and was breaking his lease and moving to New Jersey. Then I read the Greenbook and that depressed me f...
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Governor Kelley.
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Thank you, Mr. Chairman. In the fourth quarter of 1994 the unemployment rate dropped rather precipitously from 6 percent and above, where it had been for some time previously, down into the 5-1/2 percent range where it has been ever since. It also was right around that time that capacity utilization in manufacturing be...
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Governor Meyer.
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Thank you. We clearly are still struggling with the same two questions that occupied us at the last meeting. First, is the economy slowing or likely to slow quickly enough to trend to at least stabilize the unemployment rate at the current level? Secondly, is the current level of the unemployment rate definitively belo...
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Governor Phillips.
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Thank you, Mr. Chairman. At the last meeting I thought we would have more information by now. We certainly have more data, but it is not clear to me that we have much more real information. We are into the sixth year of this expansion and, depending on how we measure them, we have had either two or three soft landings....
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Governor Lindsey.
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Thank you, Mr. Chairman. I think Governor Phillips said it well when she said we have more data but not more information, and maybe that is good. I have two observations. The first is on the business use of credit cards, which I think is certainly happening. In fact, small businesses have always used credit cards as a ...
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Governor Yellen.
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I had naively hoped that with the long intermeeting interval and so many key data releases that the fog of uncertainty hovering above the forecast might lift by the time of this meeting. Unfortunately, as many of you noted, the body of incoming data has provided only modest illumination with respect to the two fundamen...
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Governor Rivlin, top that.
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Let me put a slightly more positive cast on the same facts. It seems to me that we are being a little hard on ourselves. Actually, we should be fairly pleased not only with the way the economy is performing, but with our general understanding of it as expressed at the last meeting. There may have been no defini-tive da...
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Thank you. Do we have coffee? Shall we go into recess?
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Mr. Kohn.
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Thank you, Mr. Chairman. There must be something in the water here! I began my briefing exactly as Governor Meyer began his and Governor Yellen began hers, but it diverges thereafter. I will cut through the first part of my prepared text a little. [Statement--see Appendix.] Thank you, Mr. Chairman.
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Questions for Don? If not, let me see if I can summarize and review where we are. I think we are in general agreement that there is some evidence, at least at the margin, of a slowing in the expansion from the frenetic pace of earlier in the spring. Homebuilding is beginning to soften, but I think the softening is mode...
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Governor Lindsey.
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I support your proposal.
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Yes, I support the proposal.
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President Boehne.
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I support your proposal.
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President Broaddus.
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Mr. Chairman, as I said earlier today, my main focus has been on the second of the two questions we have been looking at. The possibility clearly laid out in the staff forecast is that the trend inflation rate is set to increase even if there is some further slowing in the growth of demand. Given this situation, I stil...
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President Stern.
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Thank you, Mr. Chairman. I believe that the risks to economic performance are on the high side in the sense that the stage is set for more wage and price inflation than is desirable and perhaps than market participants expect. To be sure, the price data so far this year can be read favorably, but I know I am preaching ...
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President Parry.
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Mr. Chairman, although the pace of economic activity seems to be slowing as expected, my best estimate is that the level of activity will remain somewhat above its long-run potential. The economy's capacity and the effects of worker insecurity on wage pressures, of course, are subject to uncertainty. In my opinion and ...
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Vice Chairman.
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Mr. Chairman, I am persuaded by your explanation of what is going on and the situation we find ourselves in, but I am chastened by Don Kohn's presentation of the risk of an excessively slow reaction to a policy requirement. I support your proposal. I think that a 25 basis point increase in the face of a market expectat...
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President Jordan.
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I agree with your characterization of the situation and the kind of decision that we are faced with, Mr. Chairman, and I agree with the remarks that the Vice Chairman just made. I thought we were correct in our use of the installment plan to lower the funds rate the last three times we did so after it had peaked at 6 p...
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President Minehan.
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I ask myself, what are we doing here? [Laughter]
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That's a pretty good question. Do you have an answer?
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Yes, I have an answer to that. We are trying to keep the economy on track. We are trying to keep inflation low so as to provide the best atmosphere for economic growth. This is not easy to do, and we have not always been very successful at it. But we have been more successful over the last 10 years and particularly ove...
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You are correct.
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Good, I am glad.
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The last time I spoke to him, he said that. [Laughter]
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You are older and wiser than I am, Mr. Chairman! Now, it may be that the experience of the last 8 to 10 quarters is a signal that the economy is changing. But we are starting to see wage pressures and we are starting to see a flattening out, if not an upturn, in most of the broad measures of inflation. In this environm...
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President Guynn.
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Mr. Chairman, I support your recommendation. Although it is difficult to judge the stance of policy with any great precision, it is still my sense that with our current policy and the slowing of economic activity that we are beginning to see, we likely will be able to sustain a pace of moderate growth without a pickup ...
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President Hoenig.
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Mr. Chairman, I believe that we should increase the federal funds rate now at least 1/4 percent. As I read the evidence, inflation is not slowing. I think that is a fact and that the indications are that it will rise. I would also argue that even small but persistent increases in inflation over time can have a fairly d...
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Governor Kelley.
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I support your recommendation, Mr. Chairman.
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Governor Rivlin.
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I support your recommendation, Mr. Chairman. It seems to me that to move up now, when we did not in July and when we have seen evidence of the slowing of the economy, would be a very hard thing to explain and would risk a different kind of credibility. You said in your Humphrey-Hawkins testimony that we expected the ec...
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President Melzer.
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Thanks, Alan. With respect to the stance of policy, I would say with some conviction that I do not think it is restrictive and quite likely it is accommodative, whether we look at the growth rates of monetary aggregates or a funds rate that has not moved in the face of rising market interest rates. I think the risk is ...
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President McTeer.
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I support your recommendation.
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Governor Phillips.
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Mr. Chairman, I also support "B" asymmetric. My suspicion is that at some point we are going to need to tighten, but to me the timing is not clear. If the expansion continues at an above-trend pace, the inflationary pressures are bound to prevail. On the other hand, if productivity is better than the historical levels,...
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Governor Yellen.
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Mr. Chairman, I support your recommendation. I continue to consider the inflationary risks biased to the up side. I believe we have agreed that regardless of whether we prefer opportunistic or deliberate strategies, we should resist any sustained uptick in inflation. I support that policy. I also think Don Kohn has pro...
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