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fomc | 1,997 | President Broaddus. | 5 |
fomc | 1,997 | Mr. Chairman, economic activity in the Fifth District seems for the most part to be following the pattern of the recent national data. As in the nation as a whole, consumer spending was very strong in our region over the latter part of last year and the early part of this year, but it clearly has decelerated in the sec... | 787 |
fomc | 1,997 | President Melzer. | 4 |
fomc | 1,997 | Thanks, Alan. The Eighth District economy continues to grow at a pace consistent with national trends. Firms report moderate gains in sales and employment, but we often hear that concerns over labor availability have put a damper on expansion plans. Tight labor markets are reflected in an average unemployment rate of 4... | 777 |
fomc | 1,997 | President Boehne. | 5 |
fomc | 1,997 | Thank you, Mr. Chairman. The Philadelphia District economy is paralleling the national economy. Our region experienced robust growth in the first quarter, as did the nation, and moderating growth in the second quarter, also like the nation. The regional outlook is positive. There are tight labor markets but few, if any... | 398 |
fomc | 1,997 | President Guynn. | 4 |
fomc | 1,997 | Thank you, Mr. Chairman. As was the case the last time we met, the economy of our southeastern region also looks very much like the nation's, after having led the nation for five plus years earlier in the expansion. Sixth District economic growth appears to have moderated somewhat during the second quarter, primarily r... | 817 |
fomc | 1,997 | President Stern. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. The Ninth District economy remains remarkably healthy overall and rather than go into details about that now familiar story, let me report on a breakfast meeting that we had last week with some 20 or 30 business and community leaders from the Twin Cities. They were representative, I think, of t... | 556 |
fomc | 1,997 | President Jordan. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. I am going to characterize reports around the Fourth District as mixed. All of the large metropolitan areas and most of the medium-size metropolitan areas are not mixed at all; their local economies are operating flat out. But a number of smaller communities around the District and some countie... | 103 |
fomc | 1,997 | If you mean a 9 percent unemployment rate with a labor force of 2, that raises a very interesting mathematical question! | 25 |
fomc | 1,997 | Construction activity is reported to be booming throughout the District in that there are no unemployed construction workers. Resources in that industry are so tight that many people cannot get bids on construction contracts. There was a recent effort to secure bids for the Cleveland Browns' new football stadium, and t... | 400 |
fomc | 1,997 | Their recruitment efforts are increasing revenues in the tourist industry. | 11 |
fomc | 1,997 | We are told that there is no backlog in orders of steel, basically because new domestic capacity is coming on at a time when imports continue to be very strong and there are downward pressures on prices. One director feels very strongly that plant and equipment spending is going to slow, mainly because he says the moto... | 1,226 |
fomc | 1,997 | Governor Rivlin. | 4 |
fomc | 1,997 | I had somewhat the same instinct to look back that Cathy Minehan had, but because this is my first anniversary meeting, so to speak, I looked back to my first meeting in July a year ago. In the Greenbook for that meeting, the following points were made: GDP was growing at a rate well above trend, but the rate of expans... | 934 |
fomc | 1,997 | President McTeer. | 5 |
fomc | 1,997 | Over the last couple of months, growth of the Texas economy has begun to pick up steam. In the Eleventh District as a whole, employment growth is once again outstripping that of the nation after both had converged for a period of about a year and a half. In addition, it is becoming increasingly difficult to find any po... | 1,269 |
fomc | 1,997 | Governor Meyer, top that if you can! | 9 |
fomc | 1,997 | That is a tough act to follow. I read the recent data as consistent with a slowing in second-quarter growth to near 2 percent. I view this in large measure as a payback for the surprisingly robust first-quarter growth. More importantly, the fundamentals supporting aggregate demand, in my judgment, remain very positive:... | 1,222 |
fomc | 1,997 | Governor Phillips. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. A lot of the suspicions that we discussed last time seem to be a bit more confirmed. We have had some slowdown in consumption, at least for March through May. Inflation appears to have remained well behaved. It seems to me that the questions now before us cluster into two areas. The first is wh... | 1,003 |
fomc | 1,997 | Vice Chairman. | 3 |
fomc | 1,997 | Mr. Chairman, economic growth in the Second District has slowed slightly over the past six weeks, and the growth that is taking place is mainly in New York City. Economic activity is rather stagnant in the rest of New York State, and growth has slowed slightly in the northern part of New Jersey. We do not have great di... | 486 |
fomc | 1,997 | Governor Kelley. | 3 |
fomc | 1,997 | Thank you, Mr. Chairman. By my count, I am the cleanup hitter here in this excellent tour de table. Nearly every thing has been said, and I will be very brief. It does seem that we finally are getting a slowdown in the expansion, albeit a quarter later than expected. The inflation news continues to be very good, with n... | 408 |
fomc | 1,997 | Thank you. As you pointed out, we have come to the end of this very interesting discussion. We now move to something quite different but also something that is likely to be quite interesting. I call on Dave Stockton to lead us through this set of issues. | 52 |
fomc | 1,997 | Thank you, Mr. Chairman. [Statement--see Appendix. 3/] | 16 |
fomc | 1,997 | Questions? | 2 |
fomc | 1,997 | I don't know if I can convert this into a question, but I will make a comment that ends with a question mark. | 25 |
fomc | 1,997 | I will rephrase: Questions or comments? | 9 |
fomc | 1,997 | Thank you. It was an interesting paper and it led to provocative and 3/ Secretary's note: In Mr. Stockton's statement and the discussion that followed, reference was made to a staff memorandum to the Committee dated June 19, 1997, and titled "Toward a Working Definition of Price Stability." A copy of the memorandum has... | 828 |
fomc | 1,997 | Mr. Parry. | 5 |
fomc | 1,997 | I don't have any questions either, just some comments. I, too, think this is a very good study, and it clearly is based on some first-rate empirical work. I like the use of the model-based simulations to illustrate the tradeoffs facing policy. At least to me, these simulations suggest that a flexible approach to pursui... | 291 |
fomc | 1,997 | I would like to raise a more fundamental question about this whole issue. It is not something that we need to address in the shorter term, but it does come up when we look beyond a 5-, 8-, or 10-year horizon. If we start to focus on price stability now, we should try to be aware of the problems that we may be confronti... | 1,168 |
fomc | 1,997 | In the theoretical framework, I think we should understand that it is one thing to measure and define price stability; it may be something else again to define an inflation target. I want to put on the table the view that, before we decide that we want the target to be price stability or what I might call price stabili... | 114 |
fomc | 1,997 | Governor Phillips. | 3 |
fomc | 1,997 | Thank you. I already mentioned to Dave Stockton that I thought this memo was extremely well done. I think it advances our knowledge and understanding of the strengths and weaknesses of the various indices. It helps to focus our attention on some of the questions we should be looking at, including some that you raised, ... | 240 |
fomc | 1,997 | Let me just raise one caveat to that. If we were involved in an objective and wholly academic discussion, I would agree with that wholeheartedly. I am fearful that there are people out there who are looking for any reason to presume that a sound-money, hawkish view a la McTeer is the wrong view. That is regrettable at ... | 111 |
fomc | 1,997 | I understand. | 3 |
fomc | 1,997 | I would be very concerned that it would be misread as meaning that we have abandoned our objectives of a stable currency and stable inflationary pressures. Nonetheless, it is an issue that is going to emerge, and I do think we have to confront a lot of broadened policy issues in Humphrey- Hawkins testimony. I am a litt... | 138 |
fomc | 1,997 | I am thinking in terms of some of the conclusions of the paper, including how some of the price indices may move together and what their biases may be. I believe publishing some of that would be very useful. | 42 |
fomc | 1,997 | It depends on where it gets us. If at the end of the day we raise more questions than we can answer, I'm not sure that would be helpful to us. | 34 |
fomc | 1,997 | Maybe not, but if we are never perceived as asking the questions, I think we will not be seen as a very-- | 25 |
fomc | 1,997 | That is a valid point; I agree with that. I think that bolstering the broad range of information that is already in the Humphrey-Hawkins testimony is a good idea. But the presumption that we are just dropping ideas into an academic environment for general discussion is not my notion of what we should be doing. Presiden... | 70 |
fomc | 1,997 | Thanks, Alan. I, too, want to thank the staff for a good job of analyzing these issues, and I also appreciate having this matter on the agenda. These are topics that we need to be talking about. I see this with a shorter-term focus than you were talking about, but I feel that we could benefit at the appropriate time by... | 833 |
fomc | 1,997 | President Hoenig. | 4 |
fomc | 1,997 | Thank you, Mr. Chairman. I have a couple of comments. First, I agree that this is a good paper and the right time to be talking about this issue. It is an issue that has to be put in the context, as you mentioned, of the more important goal of sustainable growth. When we put it in that context, it becomes a very import... | 331 |
fomc | 1,997 | Let me raise a related question that is not on the table largely because, to my knowledge, nobody around this table supports the alternative in question. I am looking at page 2 of this memorandum. That page follows an executive summary comprised of several pages. The second sentence on page 2 under the heading "Theoret... | 352 |
fomc | 1,997 | But if you are a true believer, there is nothing stronger than belief! | 15 |
fomc | 1,997 | That may well be, but the true believer often has great difficulty communicating the reasons for that belief to a third party. | 24 |
fomc | 1,997 | Just to follow that up with some examples: Marty Feldstein has a paper in which he tries to demonstrate the importance of squeezing out the last bit of inflation to achieve low inflation, which he defines as 2 percent. All the countries that have zone inflation targeting have ranges of 1 to 3 percent. | 62 |
fomc | 1,997 | Part of that is the bias question. | 8 |
fomc | 1,997 | It is, but it is what I call bias plus a cushion. I think that is the issue that we really have to confront. We need to do a little more work on whether there are some costs that outweigh the benefits in eliminating that last, say, percentage point of inflation. In that regard, we should keep in mind that when we look ... | 172 |
fomc | 1,997 | I have a feeling that Dave Stockton would not want to do that study again! [Laughter] | 20 |
fomc | 1,997 | The emphasis is on "again." [Laughter] | 11 |
fomc | 1,997 | President Boehne. | 5 |
fomc | 1,997 | Just to add a brief observation on the most recent point that was made, I would agree that the importance of zero inflation is an article of faith among central bankers and that we still have a lot of work ahead of us to make that case in society as a whole. But that is not my main point. I, too, thought that the paper... | 375 |
fomc | 1,997 | President Moskow. | 4 |
fomc | 1,997 | Mr. Chairman, I also thought that the paper was very well done. It is a good step forward in addressing this issue, which is the type of longer-term issue that is important for this Committee to review from time to time. I was intrigued by Ed Boehne's suggestion of considering a basket of measures at least as one optio... | 127 |
fomc | 1,997 | You can have it first among equals. | 8 |
fomc | 1,997 | My preference for the CPI stems not so much from any technical superiority of that measure but from its familiarity to the public. Of all the inflation measures, it has received the most attention. If we were to switch the focus from the CPI to one other single measure, I think we would risk causing a lot of confusion ... | 191 |
fomc | 1,997 | Governor Rivlin. | 4 |
fomc | 1,997 | I, too, thought it was an excellent and stimulating paper. I don't think we've had a dissenting vote on that score. We do have to think a lot about where we put our marginal research effort. I guess the paper convinced me that I would not put it on refining measures of inflation. The broad measures are plausible and th... | 234 |
fomc | 1,997 | I suspect that the last couple of years are going to give us data observation points that will be very helpful to our case. What we have to demonstrate effectively is that the lower the rate of inflation, the higher the rate of productivity growth. If we can demonstrate that, we can make the case for low inflation; if ... | 92 |
fomc | 1,997 | There is a causality question here. You also have to look at whether low unemployment gives you high productivity growth and what the tradeoff is. | 29 |
fomc | 1,997 | If you cannot demonstrate at least the covariation, then the causation issue never comes up. President McTeer. | 25 |
fomc | 1,997 | Rather than comment on the paper directly, I would like to comment on your point a moment ago about the sentence that has the word "belief" in it--the belief that inflation is costly. Your statement was that that belief may be universally held within the community of central bankers, who all want to go to central banke... | 267 |
fomc | 1,997 | I think we try to make that point periodically. | 10 |
fomc | 1,997 | I believe we may overdo the point that price stability is a means rather than an end. I would like to go back to Henry Wallich's famous speech about the distinction between sound money and honest money. He made some good points there about honest money. | 52 |
fomc | 1,997 | President Guynn. | 4 |
fomc | 1,997 | As the person who may well have spent less career time puzzling over these issues, I probably have learned more than anybody around the table from this exercise. I have come to the simple conclusion that the differences among the primary indices that have been studied are quite small compared to our ability to control ... | 375 |
fomc | 1,997 | We have to be a little careful about misreading this in one respect. What the polls show is that when the inflation rate is very low no one is worried about inflation. Trying to convince them that inflation is a problem when they do not perceive it to be one, basically because it is already low, is very difficult. | 65 |
fomc | 1,997 | That's what I am trying to say. | 8 |
fomc | 1,997 | The best time to try to argue a move from 2-1/2 to 2 percent is when the inflation rate is at 10 percent! President Minehan. | 35 |
fomc | 1,997 | I must say that I, too, enjoyed reading this paper. When I came back from one of our meetings five or six months ago, where yet another index was raised as a possibility to consider, I challenged the people in Boston to tell me which of these indices were bad, which were good, and which we really should be looking at. ... | 515 |
fomc | 1,997 | Not at all. You are in effect raising the question that we were discussing before, namely, can we demonstrate that as the inflation rate falls, the rate of growth in productivity continues to increase? | 39 |
fomc | 1,997 | Right. | 2 |
fomc | 1,997 | Because that is the basic determinant that tells us whether in fact the system is functioning. | 17 |
fomc | 1,997 | Yes. | 2 |
fomc | 1,997 | We do not have enough data points in recent history to be able to make that judgment. Governor Kelley. | 21 |
fomc | 1,997 | Mr. Chairman, one part of this fascinating discussion leaves me a little nervous. There are many intriguing questions here that we can ponder. We can spend a great deal of time doing so if we allow ourselves to focus on such questions as what is money, and are prices necessarily the most relevant way to measure whateve... | 485 |
fomc | 1,997 | President Stern. | 3 |
fomc | 1,997 | Let me make several brief observations: In terms of the general question of the overall value of low inflation, it seems to me that we actually have developed some evidence. If we think about the performance of the U.S. economy in the 1960s, much of the 1980s, and much of this decade, those have been periods of very fa... | 340 |
fomc | 1,997 | Vice Chairman. | 3 |
fomc | 1,997 | Mr. Chairman, it seems to me that what we are talking about, directly or indirectly, is whether there should be a publicly stated, publicly agreed upon goal of monetary policy. By that I mean a goal that is a little more clear to the citizens of our country than what I would describe as the goal of sustained economic g... | 327 |
fomc | 1,997 | President Broaddus, you are going to have to close us down. | 15 |
fomc | 1,997 | Most of the comments I wanted to make on the paper have already been made, in many cases more than once, so I will make just a quick comment on the broader issue of the desirability of price level stability, which has come up in an interesting discussion. I have only a couple of points. One is, as Gary Stern mentioned,... | 358 |
fomc | 1,997 | Unless anyone has any final words, I think Al Broaddus has completed this session on a very good note. Congratulations to the staff who took an impossible subject and made it slightly less so. | 39 |
fomc | 1,997 | We turn to a discussion of the long-run ranges for the monetary aggregates, and I call on Tom Simpson. | 22 |
fomc | 1,997 | Thank you, Mr. Chairman. I will be referring to the handout called "Material for Staff Presentation on Money and Debt Ranges." [Statement and related handout--see Appendix.] | 38 |
fomc | 1,997 | Tom, going back to the bottom panel of Exhibit 3, I would assume that if we were to substitute gross domestic income for gross domestic product, the most recent data would not look as good as they do because we would be getting higher V2. | 51 |
fomc | 1,997 | Right, the points would be farther apart. | 9 |
fomc | 1,997 | Have you actually done the calculations to see what that would look like? In other words, is part of the tightness of fit that we see a function of the widening statistical discrepancy in the national accounts or is it de minimis? | 47 |
fomc | 1,997 | I think we are only talking about .02 on this scale. I don't think it would greatly alter the recent picture. | 24 |
fomc | 1,997 | Especially if the revision went back a couple of years. | 11 |
fomc | 1,997 | It's a question of starting points for thinking about this. | 11 |
fomc | 1,997 | But the gap has been opening up since 1994, so V2 shifts up progressively over time from the observations you have here. The most recent observations are on top of the fitted line, so we would expect a little more of a drift. | 50 |
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