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As I noted briefly, the average hourly earnings report for October did not upset us. We anticipated another large number, and it was in line with our expectations. The forecast of a stable ECI increase in 1998 reflects the expectation that wages will be favorably affected by the very low rates of consumer and overall p...
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Thank you.
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President McTeer.
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I just have a few comments that I'm not sure will be all that helpful and a question. On the balance of payments arithmetic and the worst case not appearing all that bad, I think we should not get too complacent. It seems that we are thinking of the transmission mechanism as being through the trade and the current acco...
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Before the drop, the market had moved up further. So, as of Monday, I think the average for the quarter was actually higher than we had predicted in the last Greenbook. Now, if the market stays at these lower levels, we will come out pretty much in line. The decline from the very peak of the market to the low that we f...
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In line with Mike Moskow's question earlier, I gather the stock market is going to fall because you expect higher interest rates and lower profits. I believe you have profits coming down from a growth rate of 11 percent in the third quarter to only 1 percent in the fourth quarter. That seems rather abrupt.
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It could be. We have been wrong previously! We certainly have found it more difficult in the past couple of years to track from our output forecast to profits, because the statistical discrepancy has moved substantially. Perhaps that could happen going forward. In our forecast, we do not have that continuing movement i...
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On your first comment, I would agree with you and maybe I should have been more clear. It seems to me that in the particular framework that I laid out, which is not the only way we looked at this, it is the capital account that is forcing the current account adjustment. As you say, the order of magnitude of those capit...
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I was traveling on the day that the stock market went down over 500 points. I heard about it after it had already happened. I did not get to build up to it gradually. What I heard on the car radio was that it was because of the Hong Kong stock market. So, it was stock market to stock market and had nothing to do with a...
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I was traveling, too. I got trapped in Springfield, Illinois.
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Any further questions for our colleagues? If not, would somebody like to start the Committee discussion?
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Mr. Chairman, the Tenth District economy continues to perform very well. I am going to focus my comments on anecdotal information partly because that information, though not different from the statistical evidence, is in some sense at a higher pitch as suggested by various stories coming out of our District. First of a...
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President Parry.
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Mr. Chairman, labor markets have remained quite tight in the Twelfth Federal Reserve District in recent months, as employment growth has proceeded at a strong but moderating pace. The District unemployment rate fell about 1/2 percentage point in the first half of the year and remained at this low level through Septembe...
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President Jordan.
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Thank you. In addition to the usual discussions we have had with directors and advisory council members since the last FOMC meeting, we also spent some time visiting communities around southern and western Ohio and central and northern Kentucky. I came away with an impression similar to the one I felt almost 10 years a...
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President Broaddus.
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Mr. Chairman, by all accounts, activity in the Fifth District has continued to expand strongly since our September meeting. By now, tight labor markets are obviously old news but, if anything, our sense is that they have tightened even further. Several manufacturers in our region told us over the last several weeks tha...
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President Moskow.
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Mr. Chairman, the economic conditions in the Seventh District are quite similar to what I have been reporting for several meetings. Our regional economy continues to operate at very high levels, but it is expanding at a slower rate than the nation. Our housing and manufacturing sectors are prime examples of this. As I ...
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President Minehan.
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Mr. Chairman, there is not a whole lot that is really new in New England. In a nutshell, our unemployment rates remain well below the national rate. The rate of job growth also remains below the national rate, but it finally has been sufficient to bring the region back to its pre-recession employment levels. This has o...
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President McTeer.
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The Eleventh District economy continues to expand rapidly. Recently, we have had some upward revisions in Texas employment, which have put the state's employment growth at over 4-1/2 percent for the last 12 months. This is about twice the national rate and the strongest we have seen in Texas since before the 1986 oil p...
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Try us.
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We double-checked this one. One Dallas real estate concern has not increased its secretaries' base pay in seven years, but business is so good that each secretary now receives $5,000 per month in incentive bonuses. See, I told you!
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Where do we apply? SEVERAL. Yes.
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Just don't tell my secretary! The point is that some of these profit-sharing bonuses do not end up in the wage data. I was going to say that some of you know about "the little engine that could" and tell you that in Texas we have the "big railroad that could not." [Laughter] I did mention last time that this problem wa...
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President Guynn.
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Thank you, Mr. Chairman. Since the last meeting, the new data and anecdotal information from our region seem to confirm that the Southeast is now settled into a pace of economic growth that is very similar to that of the nation. That is occurring after our regional economy had led the nation for several years. I suspec...
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Indeed they are, and I think that is one of the reasons we are running so late. Let's take a very short coffee break at this stage. I mean short because we really are tight on time.
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President Stem, you have the podium but don't hold onto it any longer than necessary! [Laughter]
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I will try to be concise. As far as the District economy is concerned, I can say the same thing that Mike Prell said about the national economy: virtually all sectors are strong. Labor continues to be in very short supply. I think there has been some upcreep in the rate of wage increases, but it certainly has not been ...
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President Melzer.
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Thanks, Alan. The economic news from the Eighth District continues to be remarkably good. Business contacts in the District remain very optimistic about future economic prospects. However, tight labor markets are a concern. The District's seven-state unemployment rate, at 4.6 percent in September, remained below the na...
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President Boehne.
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In the interest of brevity, I will touch on only a few highlights. The economy in the Philadelphia District is operating at a high level with tight labor markets, but the pace of demand has moderated some, notably in retailing and manufacturing. There are several other areas, however, that suggest that new attitudes ar...
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Governor Meyer.
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Thank you, Mr. Chairman. The outlook for monetary policy has become more complex since our last meeting. On the one hand, the slightly stronger-than-expected third-quarter GDP report, indications that the momentum in economic activity has carried into the fourth quarter, and a decline in the unemployment rate in Octobe...
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Vice Chairman.
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Thank you, Mr. Chairman. Reports on the Second District economy have had a somewhat firmer tone in recent weeks: employment growth has accelerated; retail sales have picked up in mid-to-late October; retail inventories are in good shape; wage pressures are reasonably moderate; housing markets have strengthened; the New...
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Governor Rivlin.
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We find ourselves in a new situation. For many months, we as a group have recorded our awe and wonder at the continued strong performance of the U.S. economy and our varying degrees of concern about future wage and price inflation. We have shared our evolving theories about why there has been so little increase in wage...
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I "guess" that is all right! [Laughter]
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We have shared our guesses about when the world as we thought we knew it was likely to reappear. But we have not worried much about the rest of the world except to note that global competitiveness and the strong dollar were helping us fight inflation, and that the dollar was unlikely to go on rising much longer. Otherw...
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Governor Phillips.
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Thank you, Mr. Chairman. For the United States, October turned out to be an Octoberfest of sorts. There was plenty of activity, or froth, but it is still hard to tell if all that market activity is only foam or if there is something of more substance underneath. Like the fall event in 1987, we may be witnessing another...
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Governor Kelley.
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Thank you, Mr. Chairman. Most of the incoming evidence we have been talking about suggests that the economy is continuing to grow very robustly, quite likely well beyond what even an optimist like me would like to think of as sustainable growth. Certainly, it is true that there are widespread and credible expectations ...
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Governor Ferguson.
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Thank you, Mr. Chairman. As has already been said in this room, many reports suggest that the economy was very strong in the third quarter. However, the reports also indicate that inflation remains quite quiescent. Going forward, I think there are many reasons to be concerned that this good news on prices may soon come...
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Governor Gramlich.
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Thank you, Mr. Chairman. I would like to break my remarks into a comment on our overall policy stance and another on the question of timing. On the issue of the overall policy stance, I have become persuaded that, if anything, the present federal funds rate is a little on the low side. I say that for three reasons. One...
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Let's move forward with Don Kohn.
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Thank you, Mr. Chairman. At your last meeting, many Committee members were concerned that financial conditions were too accommodative to prevent strength in aggregate demand from raising resource utilization from already elevated levels, and hence imparting--or perhaps accentuating--an upward trend to inflation in 1998...
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Thank you. Questions for Don? If not, let me move forward. Something unusual is going on in our numbers system that I think has a bearing on issues I have raised in FOMC meetings over the last two or three years. The important and striking statistic relates to the issue that Governor Rivlin raised, namely that the staf...
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Wrestle.
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Okay, wrestle.
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He is from the sophisticated part of Texas.
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I am sensitive to that!
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In any event, as I judge our discussion, we are not going to have a serious problem in reaching a decision on whether we move today. As nearly all of you have indicated in one way or another, moving today given the Asian situation would invite extraordinary financial disruption. Whatever we believe we may have to do in...
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I stand exactly where you do, Mr. Chairman, "B" asymmetric.
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Governor Meyer.
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Let me offer at least a slightly different perspective. In the absence of developments in Southeast Asia and the related turmoil in world financial markets, I believe a 1/4 percentage point increase in the funds rate would have been justified today. In my judgment, this move would have been consistent with the concerns...
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In manufacturing?
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I think we have to look two-fold: I am focusing more on the labor markets for all the reasons that you suggested, but I also agree that the gap between capacity utilization and the unemployment rate is important. If that gap widens further, then my view would be altered a little. There is also no question in my mind th...
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President Minehan.
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I am in basic agreement with you, Mr. Chairman. I want to add a couple of thoughts even though I know the time is late. I want to make clear my thinking because it has undergone a bit of a change. My comments on a set of more balanced risks notwithstanding, I do believe there are real inflationary concerns about the un...
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President Hoenig.
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Mr. Chairman, I agree with your policy conclusion. I would point out, though, that I do not agree with you because of the Southeast Asian uncertainty. I agree simply because, although I am very concerned about the momentum in the economy, I do not think that we can offer an explanation for raising interest rates today ...
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President Broaddus.
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Mr. Chairman, it seems to me that, even taking account of the market turmoil and what is happening in Asia, the basic economic case for tightening policy is considerably stronger today than it was at the time of our last meeting or even a few weeks ago. My view is that our best course of action is to go ahead and raise...
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President Boehne.
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I concur with your recommendation, Mr. Chairman.
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Governor Kelley.
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I concur with your recommendation, Mr. Chairman.
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Governor Rivlin.
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So do I.
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President Parry.
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Mr. Chairman, some indicators show that the economy is experiencing a positive supply shock. For instance, despite the robust growth in real GDP, nominal GDP growth since early 1996 has not been that much higher than its average since the end of the last recession. At the same time, other indicators such as the unemplo...
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President Stern.
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I, too, support your recommendation, Mr. Chairman. It seems to me that financial markets are too sensitive at this point for an action on our part. Having read recently about some previous financial episodes in Southeast Asia and elsewhere, I also have a suspicion that that circumstance may turn out to be a bit worse t...
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President Moskow.
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Mr. Chairman, I agree with your recommendation, but I would add that were it not for the financial volatility stemming from events in Southeast Asia, I think we would be much more likely to act today based on developments in the real economy.
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President McTeer.
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I agree with your recommendation.
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President Melzer.
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Thanks, Alan. I favor alternative C, like Al Broaddus, but I could accept "B" on the basis of unsettled market conditions. I believe inflation is likely to rise in the near future as I mentioned in my earlier comments, and I think, as Al does, that there are risks in waiting. So, I believe it is very important that whe...
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Governor Gramlich.
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I concur with your recommendation, Mr. Chairman.
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President Jordan.
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This expansion will ultimately come to an end when the speculative excesses and imbalances have built to a point where we have no choice but to take strong action to deal with them and put the economy into a recession. The speech I would not want to have to write is one saying we never saw it coming and when we finally...
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President Guynn.
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I support your recommendation, Mr. Chairman. I agree with those who say we have not given up terribly much today by allowing ourselves a little more time.
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Governor Phillips.
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I also concur for the reasons that Mr. Guynn just expressed.
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Governor Ferguson.
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I concur with your recommendation.
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Let me ask the Secretary to read a "B" asymmetric directive for purposes of voting.
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I will be reading from page 14 in the Bluebook. Page 14 follows several pages of tables and charts: "In the implementation of policy for the immediate future, the Committee seeks conditions in reserve markets consistent with maintaining the federal funds rate at an average of around 5-1/2 percent. In the context of the...
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