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fomc | 1,998 | Do they take in collateral on this paper? | 9 |
fomc | 1,998 | Yes, they are taking in some. | 8 |
fomc | 1,998 | So, it is collateralized. | 7 |
fomc | 1,998 | The collateral is the private paper. It is like our discount window. If we take in a "Trump" note from a bank, our collateral is-- | 31 |
fomc | 1,998 | As Ted says, it is government paper. Let me ask you this because it is an interesting issue. Can you conceive of a problem emerging in that respect? | 32 |
fomc | 1,998 | I think Cathy Minehan is pointing to a real problem, Mr. Chairman. At the margin, that is the direction. I'm not sure one would assert that the Bank of Japan is now the bad bank for the banking system, but as people now talk about it in Tokyo the marginal change seems to be in that direction. That is what I am reportin... | 72 |
fomc | 1,998 | It is getting scarier and scarier. At least, I am getting more scared. | 18 |
fomc | 1,998 | I think it is fair to say that there are other mechanisms to take over the really bad paper. In some sense this occurs when they actually resolve institutions. It's not clear to me exactly what has happened when institutions that failed were taken over by one of these resolution banking organizations. That is where the... | 131 |
fomc | 1,998 | Further questions? | 3 |
fomc | 1,998 | Move approval of the domestic operations. | 7 |
fomc | 1,998 | Is there a second? | 5 |
fomc | 1,998 | Second. | 2 |
fomc | 1,998 | Without objection. Mr. Prell. | 8 |
fomc | 1,998 | Thank you, Mr. Chairman. I might call your attention to the housing data that were put at your places this morning. I won't go into that at any length. Let me just say that the single-family housing starts and permits data were very close to our expectations, while the multifamily starts were on the low side and really... | 2,428 |
fomc | 1,998 | Questions for Mike? President Parry. | 8 |
fomc | 1,998 | I have two questions about your forecast, one about your new estimate of the trend growth of productivity and the other about the outlook for inventories. Could you say something about the educational and job experience composition data that were referred to in Monday's briefing by the Board staff and also in the Green... | 98 |
fomc | 1,998 | I think the analysis is a little more complicated than that, and I will spare you some of the details. I would probably stumble over them in any event. We have been building into our forecast a substantial allowance for a positive effect on productivity from capital deepening. We did not have a set of numbers that was ... | 417 |
fomc | 1,998 | On the inventory forecast, I think a distinguishing characteristic of the Greenbook forecast, certainly for the current quarter and the following two quarters, is what happens to inventories. Given the expectation for the second quarter, shouldn't we be seeing more signs of the projected deceleration at this point in t... | 101 |
fomc | 1,998 | I think I voiced my concern in this regard, maybe not clearly enough. There are a couple of possibilities here. One is, as I indicated, that while we cannot find a flaw in the data at this point, inventory investment may still have been significantly less rapid than the first-quarter numbers currently seem to add up to... | 197 |
fomc | 1,998 | In the short run, that provides a little more support to production, employment, and income growth, and this process can be self-sustaining to a point. But I think the level of inventories is high enough now that one has to anticipate a gearing down in the rate of inventory accumulation at some point in the coming mont... | 174 |
fomc | 1,998 | Thank you. | 3 |
fomc | 1,998 | President Moskow. | 4 |
fomc | 1,998 | Mike, I wanted to ask you about one part of the wage side of the forecast. As you point out, you anticipate that workers will accept limited wage increases in the future because of low inflation and low inflation expectations. Of course, we know that wages are going up now. We have seen that in all the measures, and we... | 216 |
fomc | 1,998 | The process by which price movements enter into the determination of wages is very complex. The movements in the CPI are a benchmark in some collective bargaining situations where employers are gauging an appropriate pay increase to offer their employees in the hope that the workers will not be so perturbed about where... | 800 |
fomc | 1,998 | Thank you. | 3 |
fomc | 1,998 | President Minehan. | 4 |
fomc | 1,998 | I think you have mostly answered this question, but let me pose it in another way. Are the computational changes being made in the CPI masking the real price increases that are occurring? In other words, is there a distinction between what people really are experiencing and what the numbers say, or are the computationa... | 69 |
fomc | 1,998 | That is an interesting question, and it may suggest that the way I approached the prior question was not right. In a sense, we think these changes are improvements in the measurement of inflation because they better capture reality. I guess that suggests that if all along people had been making their decisions based on... | 92 |
fomc | 1,998 | So, you don't see further major changes after the end of this period in BEA's computation of this measure? If you take the 1994 numbers, compare them to those projected for 1999, and adjust for measurement differences, you get an upward trend of something like .5 percent. You don't think that trend will then reassert i... | 99 |
fomc | 1,998 | We think these numbers better capture the reality. We also think that it is important to keep tabs on this in thinking about whether there is an acceleration or not in the rate of inflation. | 37 |
fomc | 1,998 | The reality is that real inflation is lower now than the current numbers are suggesting. While the price measures are getting closer to actual price inflation, our forecast indicates that there is some pickup in the real underlying rate of inflation, that is, between where we think inflation is in the real world today ... | 72 |
fomc | 1,998 | We are moving only incrementally toward reality in the measurement changes. The fact that we are getting there gradually means there is a distortion in the underlying acceleration. | 31 |
fomc | 1,998 | This gets into metaphysics! [Laughter] | 10 |
fomc | 1,998 | Mike, can we get the University of Michigan to insert a single additional question for just one month? Before people are asked what they expect price inflation to be over the next year, they would be asked what they thought inflation was in the previous year. I will bet that the results would be startling. | 60 |
fomc | 1,998 | I'm sure they would be happy to accommodate us for a price. [Laughter] | 17 |
fomc | 1,998 | If we asked a number of people what the inflation rate was in the last year, I cannot believe that most would come within 5 percentage points. This Michigan Survey, as best I can judge, is asking straight questions of people without any bias. Even so, I would be terribly curious to see whether the responses come close ... | 129 |
fomc | 1,998 | I suspect that the Michigan survey people might have some qualms about injecting that question, given the possibility that it would disturb the answer to the subsequent question. | 31 |
fomc | 1,998 | It surely would. | 4 |
fomc | 1,998 | They don't have to give survey participants the correct answer for some index. In fact, I don't think the question relates to any particular index. | 28 |
fomc | 1,998 | Maybe they ought to ask my question after they ask all the other questions! | 15 |
fomc | 1,998 | That would be a safer approach in that respect. | 10 |
fomc | 1,998 | The people at the Michigan Survey have tried to design the series of questions that they ask very carefully in order to avoid getting biased responses. In fact, Mr. Chairman, you are right that when people are asked in surveys what inflation has been in the past, the results are similar to what you are suggesting. In s... | 99 |
fomc | 1,998 | Doesn't the Conference Board truncate some of these means? | 11 |
fomc | 1,998 | The Conference Board truncates both the upper level and the lower level responses. They confine the answers to a 0 to 15 percent range, whereas the Michigan Survey allows the full range of responses. | 41 |
fomc | 1,998 | It would be very interesting to know whether that works. | 11 |
fomc | 1,998 | Just on this point alone, of the identifiable biases in the CPI, more than half of them are still there. BLS has taken out 0.6 percentage point, but that is less than half of even the identifiable biases. | 47 |
fomc | 1,998 | Yes, of that estimated one point plus something. | 10 |
fomc | 1,998 | President Poole. | 4 |
fomc | 1,998 | I have a comment and a question. Clearly, the outlook depends, as you made clear, on the outlook for equity prices, the bond market, and the exchange rate. For the bond market, you are assuming that rates stay about where they are, which I think is a sensible thing to do. I think it makes the most sense to have a basel... | 247 |
fomc | 1,998 | We have talked to a number of business people and have attended meetings where economists from various corporations talked about these things. There are not a lot of industries where the accumulation of inventories stands out. I can cite a few anecdotes and a few statistics that I think might be worthwhile. The chemica... | 164 |
fomc | 1,998 | Crude oil and oil product inventories have moved up quite significantly. | 13 |
fomc | 1,998 | There is no doubt on the oil side. My sense is that the buildup was only to a modest degree the result of price speculation. It appears to have been much more the result of softer-than-anticipated demand for petroleum products because of the warm winter weather. | 52 |
fomc | 1,998 | That is evidence of some backing up in inventories because the accumulation is not what they intended. | 18 |
fomc | 1,998 | Right. | 2 |
fomc | 1,998 | So, from the look of things, oil inventories are higher than intended. The oil companies obviously would have preferred a lower level of liftings around the world, especially the amount that has flowed into the United States, which they obviously are trying to cut. Oil stocks are not an irrelevant statistic among the n... | 66 |
fomc | 1,998 | I was just trying to get at the issue of whether the firms themselves felt that their inventory accumulation was voluntary or involuntary. | 25 |
fomc | 1,998 | I think the answer, and that is what the Greenbook suggests, is that there's very little evidence that it is involuntary. | 26 |
fomc | 1,998 | Right, that's what I thought. | 7 |
fomc | 1,998 | In that regard, the only really interesting statistic that we have is the response to a question we asked the purchasing managers, namely whether in their judgment the inventories of manufacturers' customers were too high, about right, or too low. While the latest published number is up slightly, it is still well withi... | 134 |
fomc | 1,998 | Yes. We showed these data in our briefings for the Board yesterday that I hope the presidents received. Neither the Purchasing Managers' survey nor the NFIB survey provides significant evidence that there has been any unintended, undesired accumulation of inventories in the first quarter. One of the things we did not h... | 97 |
fomc | 1,998 | That is usually an indication of history though. | 9 |
fomc | 1,998 | It may be that they are reflecting what has happened but, be that as it may, the April number took a big jump. It actually looks weird. For what it's worth, no concern was expressed there, and in fact the NFIB survey overall, as interpreted by their own people, would suggest that the growth of the economy in the second... | 109 |
fomc | 1,998 | The truth of the matter is that inventory backups are perceived only when final demand begins to slow. I think we almost never find anecdotal inventory concerns when markets are moving as fast as they are currently. | 40 |
fomc | 1,998 | Let me offer two very brief final points. One is on the financial side. If one looks at the business financing flows, short-term business credit in particular, those flows are not inconsistent at all with there having been a strong run-up in inventories earlier in the year. And what we have in hand for the first part o... | 87 |
fomc | 1,998 | Part of the latter is corporate debt repayments. | 9 |
fomc | 1,998 | Yes. I was going to caution that this is not an entirely reliable indicator. There are a lot of things going on in the financial sector. | 29 |
fomc | 1,998 | It is the only one that we have showing an acceleration in the second quarter. | 16 |
fomc | 1,998 | The other point I want to make is that it is not simply a question in our minds of whether this inventory buildup is involuntary. It is in large measure simply a question of whether the inventory accumulation was as rapid as was indicated for the first part of the year because, one way or another, that rate of inventor... | 98 |
fomc | 1,998 | In other words, merely reducing the rates without any indication of whether there is a problem or not will arithmetically reduce the level of output. | 30 |
fomc | 1,998 | Right. | 2 |
fomc | 1,998 | With regard to your comment on exchange rates, President Poole, we did look about a year or so ago at whether we would forecast better if we used expected forward exchange rates and forward interest rates. It gets a little complicated when we use non-G10 currencies by the way. The answer is that we introduce more noise... | 168 |
fomc | 1,998 | On the stock market, President Poole, this is a recurring question and it puts us in a tough logical bind. You suggested a formulation that would have grossly underforecasted what happened to stock prices over the past couple of years but not as much as we have. [Laughter] | 59 |
fomc | 1,998 | I was about to get to that! | 8 |
fomc | 1,998 | We took a punch on that one, and it has been painful. But the other issue is one of simple coherence. To the extent that we have any inkling of what is built into the stock market in terms of expectations about monetary policy, interest rates in general, earnings, the behavior of the economy, and so on, it leaves us un... | 171 |
fomc | 1,998 | President Jordan. | 3 |
fomc | 1,998 | Mike, I want to comment on your response to a question by Mike Moskow. I am trying to reconcile it with my own view of the process, which right now I am not able to do. You talked about the extraordinary domestic demand and about the increases in compensation we are seeing. Year over year since 1993, we have seen a ste... | 278 |
fomc | 1,998 | Are you talking about nominal figures here? | 8 |
fomc | 1,998 | Yes. | 2 |
fomc | 1,998 | Total personal income, not disposable? | 7 |
fomc | 1,998 | Total personal income. | 4 |
fomc | 1,998 | I have not focused on that measure. We have a considerable slowing in the economy-- | 17 |
fomc | 1,998 | But personal income is for people who are working and getting paid. The number of people working is going to go up another 600,000 this quarter according to the Greenbook projection, and everything we hear indicates that what will be going into their pay envelopes will be bigger than before. Every employer we talk to c... | 124 |
fomc | 1,998 | I can see in the detail of our forecasts a number of components that we have shifting. Transfer payments, for example, fall off, presumably because of the spurt in social security payments in the first quarter. But I guess I don't have a compelling answer for you. Total personal income in the first half is still rising... | 119 |
fomc | 1,998 | It always drops from the first quarter to the second quarter, which says something about the seasonal adjustment. But as the quarterly personal income numbers run out through the end of 1999, they maintain a nice steady 4 percent rate of growth. | 49 |
fomc | 1,998 | When we go out that far, I don't have a big problem reconciling this growth path with the much more modest increases in employment that we are forecasting. It is more with regard to this first quarter-second quarter pattern that I am not prepared to give you a nice crisp answer as to why we have that particular gyratio... | 129 |
fomc | 1,998 | Some of the anecdotal comments we are hearing can be put into a framework that people are familiar with, one that indicates a purely transitory decline in the NAIRU along the lines of what I think of as the inverse of the money illusion. From a money framework, the reason we have lags in the system is the existence of ... | 292 |
fomc | 1,998 | You're switching gears on me! Before I was addressing the question of employment growth and how that is slackening substantially over the forecast period and accounting for a good part of this slower growth in personal income. The other question is what is going to happen to real wage rates or nominal wage rates. I dis... | 433 |
fomc | 1,998 | How important is next week's number on personal income for April? I look at this and say that if the two sides of the accounts are going to add up, we better get a sharp slowing in the growth of personal income for the second quarter. | 49 |
fomc | 1,998 | Obviously, we would look at a number on personal income and adjust our forecast as appropriate. The personal income number is rarely something that is of enormous importance in itself because we think we have some rough handle on how those numbers are estimated from the available data on hours and average hourly earnin... | 60 |
fomc | 1,998 | May I ask a question on that, a very quick question? | 13 |
fomc | 1,998 | President McTeer has been trying to get in. He has probably forgotten his question! [Laughter] | 22 |
fomc | 1,998 | I want to call your attention to the third paragraph on the first page of the Greenbook. I'm going to read two sentences and ask a question about the second one. "Our forecasts of moderating growth of demand have long been premised on an assumption that some reversal of stock prices would be precipitated by a failure o... | 135 |
fomc | 1,998 | No, it reflects the thought that our stock price assumption might be too low or that we might be putting too much of a premium on what we think is rational investor behavior. As we see it, if the market continues to go up, the wealth effects, cost of capital effects, and so on would stimulate greater aggregate demand. ... | 125 |
fomc | 1,998 | I just had a very brief question about personal income. Doesn't the first release on personal income come mostly from the employment data? If so, is it really an independent reading on personal income? | 38 |
fomc | 1,998 | Exactly. | 2 |
fomc | 1,998 | Okay. | 2 |
fomc | 1,998 | There is some massaging. As we have indicated, at the present time with all of the uncertainties about the measurement of the average workweek and average hourly earnings, that massaging is more important. To a first approximation, we think we know how BLS is doing this, and that is not normally an independent piece of... | 70 |
fomc | 1,998 | Any further questions for Mike? Go ahead. | 9 |
fomc | 1,998 | I have just one final question, Mike. If I understood what you said about the stock market, you described it as a possible source of excess demand in the economy that would cause us to be concerned. Is that what you are saying? | 48 |
fomc | 1,998 | We tried to address this issue once again. I assume that President Poole noticed this in Part I. We do have a simulation where the stock market rises moderately. Given the uncertainties about equity premiums, I am not sure what your formula translates into, but basically the alternative has the equity values rising wit... | 157 |
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