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fomc | 1,998 | No, it has been in existence for some years. The fact that we make payments to the Treasury periodically through the year does reduce the political dimension of this. In some foreign countries such as Germany, the central bank makes a payment once a year and the size and timing in and of itself is a political event. Le... | 128 |
fomc | 1,998 | Mr. Chairman, I move approval of the domestic operations. | 12 |
fomc | 1,998 | Hold on. Some of your colleagues may have more questions. | 12 |
fomc | 1,998 | I was looking around and didn't see any. [Laughter] | 13 |
fomc | 1,998 | I will presume you are correct. Is there a second? | 12 |
fomc | 1,998 | I will second it. | 5 |
fomc | 1,998 | Without objection. We now move on to the Chart Show with Mike Prell and Karen Johnson. | 19 |
fomc | 1,998 | Thank you, Mr. Chairman. We will be referring to the charts in this colorful handout in front of you. 2/ Chart 1 summarizes the staff forecast. I should note that here, as in the other exhibits, we have used the Greenbook numbers for GDP-related variables rather than those in the BEA's advance release. We have done thi... | 1,200 |
fomc | 1,998 | Financial market turbulence in Asia has dominated events abroad over the past six months. We have attempted to foresee how these events will influence prices, global trade, and thus output growth both here and abroad during this year and next. Despite our best efforts, uncertainty about exactly how these variables are ... | 2,430 |
fomc | 1,998 | The next two charts focus on the dynamics of private demand in the forecast. First, in Chart 8, the upper left panel shows real PCE growth holding at a high rate for a while longer and then dropping off to 2 percent in 1999. All signs look positive for consumer spending in the short run, among them the historically hig... | 2,262 |
fomc | 1,998 | Let me say first that as is usually our procedure, we will allow the forecasts that you submitted to Mike Prell to be subject to revision until the close of business on Monday, February 9. Questions? | 42 |
fomc | 1,998 | Mike, I want to ask a question related to your confidence in the consistency of the financial and the real forecasts. I would like to get Peter's reaction from the market's standpoint and from the Desk's as well. Looking at Chart 1, Chart 2, and the Greenbook numbers, let us imagine that six months from now, maybe at t... | 153 |
fomc | 1,998 | Let me say that in our forecast we anticipated that a considerable proportion of market participants would be expecting us to ease in that economic environment. So, we actually have long rates coming down from their current levels. We indicated in the Greenbook that they probably would go down to their recent lows and ... | 93 |
fomc | 1,998 | In my presentation, I pointed to the possibility that bullish sentiment is already building in the market. This is one of the anxieties that I have in looking at the market. | 35 |
fomc | 1,998 | Okay. | 2 |
fomc | 1,998 | It is not uncommon to find forecasts that indicate a little more strength in the bond market than ours does over coming months. Those forecasts are associated with predictions of 30-year Treasury rates in the area of 5-1/4 to 5-1/2 percent, and there are those who are looking for a rate of 5 percent in the not too dist... | 76 |
fomc | 1,998 | The question was really about confidence in the consistency of the two sets of data, the national income and product account numbers and the financial. When I look at the Blue Chip forecast, for instance, it is not clear to me to what extent such a forecast is already built into the current market. If this Greenbook pr... | 79 |
fomc | 1,998 | I think our economic forecast is weaker than most of those in the market. There are people with even weaker forecasts than ours for 1998, but the Blue Chip consensus looks more like your forecasts at this juncture, and it appears to be associated with essentially stable short-term rates. | 57 |
fomc | 1,998 | How much of an error in the Greenbook projections for the next two quarters, the current quarter and spring quarter, would be required before we had a significant backup in market interest rates? To what extent does the market in this sense need to see something close to this kind of projection to hold these levels ver... | 68 |
fomc | 1,998 | Peter may have greater insight into this than I, given his proximity to more market participants. I guess my sense is that real growth alone is not going to be the critical variable. I think a more crucial factor will be signs that inflation is picking up in a way that would be perceived as making the Fed very nervous.... | 125 |
fomc | 1,998 | I was going to comment that over the last couple of months in particular the markets seem to have had a weaker picture of the outlook for economic growth and inflation than many economists. The markets seem to be building in a softer path for short-term rates, even making the allowances that Peter mentioned, than have ... | 203 |
fomc | 1,998 | I was asking the question because headline reports about the Asian situation give one the impression that these economies are even bigger than California's economy, let alone Canada's, which, of course, is not true. All of them taken together are not that large in terms of their aggregate GDP, total trade, or shares of... | 201 |
fomc | 1,998 | Yes. But I must say that exactly what has been happening to house prices is a little unclear. By most measures such prices have been rising somewhat faster than the general inflation rate. The rise varies from measure to measure and seemingly month to month, but I think there has been a real increase. We anticipate a f... | 89 |
fomc | 1,998 | President Parry. | 4 |
fomc | 1,998 | Mike, I have a question about the ECI forecast. I understand your point about the fourth quarter of last year. If we look at the trend of the ECI in your forecast from the second quarter of last year to the first quarter of 1999, it seems unlikely to me that we are going to continue to experience such a favorable trend... | 276 |
fomc | 1,998 | I don't know if it is the area in which we have our greatest uncertainty, but I would certainly agree there is uncertainty attending this part of the forecast. It probably is unwise to put too much weight on the quarterly progression of these compensation numbers. We have found them to be extremely erratic and the seas... | 618 |
fomc | 1,998 | How significant is the correlation between nominal compensation and productivity? | 11 |
fomc | 1,998 | I don't know the answer to that question, but I suspect the correlation is very weak in the short run. In fact, we get some of our largest compensation increases when productivity increases are beginning to fall near the end of a cyclical expansion. But I would not venture a further statement on that. | 60 |
fomc | 1,998 | One can put nonfarm business productivity into a wage equation and actually see whether or not productivity is an important factor explaining nominal wage gains. The statistical effect turns out to be marginally significant at best. We know that real wage aspirations, loosely based on productivity, ought to be an impor... | 104 |
fomc | 1,998 | The reason I raise the question is actually the reverse; it relates to anecdotal indications that when nominal wages are beginning to accelerate, then business escalates its efforts to reduce costs and improve productivity. So, if that model were functioning in a meaningful sense, then a significant rise in nominal wag... | 100 |
fomc | 1,998 | Some of this has been touched on in the simulations of the effects of a productivity surprise that we have discussed in the past and how it might feed through to wages, profits, and prices in a short-run dynamic. One of the things that presumably happened in the fourth quarter is that people working in mortgage banking... | 94 |
fomc | 1,998 | President Minehan. | 4 |
fomc | 1,998 | Thank you, Mr. Chairman. Mike, I think you mentioned before that the Greenbook forecast is at the low end of a lot of outside forecasts, including the low end of the Blue Chip range in particular. You also mentioned that it was a little lower than most of our forecasts here. Obviously, the two things that are driving y... | 157 |
fomc | 1,998 | I don't have a precise numerical answer to that question. If we were to generate higher export growth in our model by exogenously stronger income growth abroad, then we would go through a process involving certain interactions whose result would be to produce a net positive impact on U.S. GDP. | 57 |
fomc | 1,998 | The effect on GDP would be 0.2 percentage point, I think. | 16 |
fomc | 1,998 | A couple of tenths? | 6 |
fomc | 1,998 | Yes. Exports are 10 percent of GDP. When they grow 2 percent faster, I think the answer would be 0.2 percent, roughly. | 33 |
fomc | 1,998 | That implies a multiplier of 1. | 8 |
fomc | 1,998 | The multiplier might be as high as 112. | 10 |
fomc | 1,998 | Yes, 1 to1-1/2 is usually what we use as a rule of thumb in our calculations. | 24 |
fomc | 1,998 | What are the underlying reasons for your forecast of exports being as low as it is in comparison to other forecasts? I guess it's not important what other people think in some sense, but you must have a lower forecast for foreign GDP. | 46 |
fomc | 1,998 | To a degree. The swing in exports in our forecast, as our models depict it, owes to the relative price term more than to what we are saying about the slowdown in the growth in foreign GDP. | 41 |
fomc | 1,998 | So, that has more to do with the appreciation of the dollar? | 14 |
fomc | 1,998 | Yes. Forecasters do vary in terms of the speed and strength of the reaction to changes in exchange rates that they put into their models. I don't think we really are an outlier in terms of the nature of our model being radically different from other models. Our forecasts are comparatively a little weak on some countrie... | 543 |
fomc | 1,998 | I do not doubt that it is going to slow. Dropping off the cliff is the question. The other area of uncertainty that is actually more important in thinking about the slowing rate of GDP growth is inventories. | 42 |
fomc | 1,998 | I don't know that it is more important. I think they're both very important in the short run here. | 21 |
fomc | 1,998 | Okay, but given the change in the rate of change, don't inventories end up being more important? | 20 |
fomc | 1,998 | Setting aside the very fine points of the effects of seasonal adjustments, net exports are the bigger drag in the first few quarters of this year. There is a dynamic here that I alluded to very briefly. I think you are right. As I have looked at other forecasts and tried to figure out the arithmetic I have seen, our co... | 79 |
fomc | 1,998 | And business fixed investment? | 5 |
fomc | 1,998 | Business fixed investment is in the ballpark of the outside forecasts. So, I think you've put your finger on two key elements. On inventories, I have seen forecasts that anticipate rates of over $40 billion of inventory accumulation through the year. That is well beyond the final sales growth that they are forecasting ... | 304 |
fomc | 1,998 | The actual data will be complicated by a residual seasonality problem. If history repeats itself, the first-quarter data, as they get announced to the world, will show weaker exports because the fourth quarter is one that we estimate has a big positive residual seasonal factor. I think such a development in the first q... | 208 |
fomc | 1,998 | I don't want to extend this unduly, but I should remind you that not everyone is expecting a stock market decline. As I said, our consumption forecast does not look weak and our business fixed investment forecast does not look all that weak relative to other forecasts. But if we were to assume a modest rise in the stoc... | 81 |
fomc | 1,998 | I don't want to prolong this either, but there is an interesting issue related to this on which I would like to have your reaction. When the Mexican problem emerged, the collapse in their trade was immediate and direct, but it had very little in the way of a multiplier effect because virtually everything Mexico was doi... | 97 |
fomc | 1,998 | We asked our analysts to calculate mentally, econometrically, or indeed using any other estimating device they have available to them, how much they have lowered their economic forecasts for Canada, Japan, and major European countries in response to the events in troubled Asian economies. Of course, the answer varies d... | 409 |
fomc | 1,998 | I was at a meeting yesterday where there was a discussion of the IMF's forecast for particular industrial nations and for the industrial world as a whole. With regard to the effect of Asian developments, I was struck in listening to the forecast presented by Mike Mussa at the difficulty the IMF staff, too, was having b... | 508 |
fomc | 1,998 | President Stern. | 3 |
fomc | 1,998 | I'm afraid I am going to belabor this a little further. The income effect is one thing. We discussed that and we may come out at slightly different places about the importance of Southeast Asia or at least the countries affected so far and how well integrated our economies may be. Let me ask about the relative price ef... | 153 |
fomc | 1,998 | I guess I did not follow the question too well. I think if one looks at Chart 3-- | 21 |
fomc | 1,998 | I am trying to say that it is not news that the dollar is higher. | 16 |
fomc | 1,998 | In putting together the Greenbook forecast, we have not extrapolated the strength of the dollar. We saw the dollar rise from the spring of 1995 into 1996. Our view was that to some degree the rise was warranted because in the spring of 1995 the dollar was exceptionally weak, and there were good reasons for it to rise. ... | 553 |
fomc | 1,998 | Any further questions? If not, who would like to start the Committee discussion? President Parry. | 20 |
fomc | 1,998 | Mr. Chairman, economic growth in the Twelfth District picked up in recent months. The pickup was broad-based and it occurred in most areas of the District. Payrolls expanded most quickly in the states of Utah, Nevada, and Arizona, where employment growth accelerated to annual rates of 4.6, 6.6, and 9.5 percent respecti... | 751 |
fomc | 1,998 | President Broaddus. | 5 |
fomc | 1,998 | Overall economic activity in the Richmond District appears to have strengthened rather than weakened in recent weeks. With respect to goods, some of the manufacturers in our region are reporting faster growth in January in both shipments and new orders. Service sector revenues appear to be continuing the strong growth ... | 889 |
fomc | 1,998 | President Boehne. | 5 |
fomc | 1,998 | Thank you, Mr. Chairman. The economy in the Philadelphia region remains strong and labor markets are tight, but there are few indications that inflation is accelerating. Businesses in the District continue to find ways to deal with tight labor markets. One illustration is an auto manufacturing plant in the District tha... | 643 |
fomc | 1,998 | President Guynn. | 4 |
fomc | 1,998 | Thank you, Mr. Chairman. Over the past year, the performance of the Sixth District economy generally has paralleled that of the nation, and with few exceptions that continues to be the picture that we see. Today, rather than run through a detailed commentary sector by sector, I thought I would concentrate my remarks on... | 1,360 |
fomc | 1,998 | Well done. President Moskow. | 7 |
fomc | 1,998 | Thank you, Mr. Chairman. The Seventh District economy continues to expand at a moderate pace with only a few reports thus far that Asian developments have had any measurable impact. However, many of our contacts expect their businesses to be affected as the year progresses. In the consumer sector, retailers generally e... | 884 |
fomc | 1,998 | President Minehan. | 4 |
fomc | 1,998 | Thank you, Mr. Chairman. The New England economy continues to perk along with perhaps more strength than at least some other regions. Employment is rising at close to the national pace. The unemployment rate in all six New England states is below the nation's and well below in the case of Massachusetts, New Hampshire, ... | 626 |
fomc | 1,998 | Is that in the GDP? | 6 |
fomc | 1,998 | It can help! The second issue of note is the purchase of Digital Equipment by Texas-based Compaq Computers, billed as the largest takeover in the history of the computer industry. This purchase along with Compaq's recent acquisition of Tandem makes the company the second largest computer maker in the world behind IBM. ... | 401 |
fomc | 1,998 | President McTeer. | 5 |
fomc | 1,998 | The Eleventh District economy remains strong in almost every respect, although the crisis in Southeast Asia has caused expectations to be downgraded considerably. The January go-around among our directors, for example, was noticeably less positive than December's in terms of expectations. Nationally, in my first cut at... | 157 |
fomc | 1,998 | That would be tough! | 5 |
fomc | 1,998 | The trouble is, they already did that! [Laughter] | 13 |
fomc | 1,998 | I must say that their strong final sales number upset my calculations a little. In any case, we really do expect to see more of the same--very low inflation combined with quite strong real growth. Most of what I have said in recent meetings relating to the growth of the Eleventh District economy being stronger than the... | 1,016 |
fomc | 1,998 | President Hoenig. | 4 |
fomc | 1,998 | Thank you, Mr. Chairman. The Tenth District economy continues to do well on balance. Manufacturing continues to operate at relatively high levels of capacity utilization and is a source of strength for the District as a whole. Significant investments are still being made in our region. Examples include the recent annou... | 672 |
fomc | 1,998 | President Jordan. | 3 |
fomc | 1,998 | Thank you. The strength in virtually all sectors of the Fourth District economy in 1997 was sustained through year-end and appears to have carried over into at least the early weeks of the new year. The most common complaint we continue to hear has to do with recruiting and retaining people. Turnover of workers continu... | 1,080 |
fomc | 1,998 | President Stern. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. With regard to the District economy, it is hard to imagine that conditions can get any better, with perhaps a few minor exceptions. I have described much of this to you in recent years, and I will not go over this terrain again. A particularly bright spot at the moment is construction activity.... | 383 |
fomc | 1,998 | Governor Rivlin. | 4 |
fomc | 1,998 | As a lot of people have noted, the Committee is faced with an unusual degree of uncertainty. We all said that to each other in December but it is more true now. Uncertainty does not make today's decision harder; in fact, it makes it easier. The fact that there is no imminent danger of inflation or recession makes it ea... | 879 |
fomc | 1,998 | Governor Gramlich. | 4 |
fomc | 1,998 | Thank you, Mr. Chairman. Usually on college campuses, the demand for economics courses goes up as economic conditions worsen, so I guess in a way I'm glad I switched careers. Looking at the forecast, inflation seems to be stabilizing at about 2 percent or so. That rate is arguably close to a definition of stable prices... | 544 |
fomc | 1,998 | Governor Phillips. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. The year 1997 turned out to be a very good year, no matter how we look at it. Output expanded. The U.S. jobs machine was alive and well. Salaries and wages recorded real growth. A balanced federal budget came into in sight. Overall inflation was relatively well contained; goods inflation appear... | 633 |
fomc | 1,998 | Governor Ferguson. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. I understand that the role of central bankers is, in fact, to take risks. I was rather surprised to learn that, coming as I did from consulting where we took no risks. But I am getting used to this job. The economy, as others have said, clearly entered 1998 with significant momentum. Since we l... | 421 |
fomc | 1,998 | Vice Chairman. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. Recent reports on the Second District economy point to steady growth. That is an improvement over recent years. Both the payroll and household surveys indicate further tightening in the District's labor markets in December and in the fourth quarter overall. Payroll employment for New York and N... | 715 |
fomc | 1,998 | Governor Kelley. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. We're coming down the home stretch here, and I'm afraid I am going to be quite repetitive, but I will press ahead briefly. Inflation, of course, is still showing no signs of rearing its ugly head even as the domestic economy rolls along strongly. We had a very strong fourth quarter and this qua... | 464 |
fomc | 1,998 | Governor Meyer. | 3 |
fomc | 1,998 | Thank you, Mr. Chairman. Not a lot has changed since the last meeting to affect my assessment of the near-term outlook. The key forces at work remain clear. These are the tug of war between the momentum in domestic demand and the expected external drag from Asia and the tug of war between very tight labor markets and t... | 665 |
fomc | 1,998 | Mr. Rives. | 5 |
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