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fomc | 2,000 | Could I just give an interpretation of why the staff has a somewhat different perspective from most of the private forecasts? I think the main difference is that the staff here has a very strong view of the interaction of supply and demand. This common force of productivity is affecting both demand and supply. I think ... | 109 |
fomc | 2,000 | I think that is exactly right. In fact, the risks to the staff forecast may very well be on the up side. The probability that their forecast is too low is by no means negligible. | 39 |
fomc | 2,000 | I might just say, in terms of signs of strong demand, that we have received a preliminary reading on January auto sales. And they seem to have come in at almost 18 million units--17.9 million--for light vehicles, which is well above the rate we are anticipating for the first quarter. So that in combination with the con... | 93 |
fomc | 2,000 | President Jordan. | 3 |
fomc | 2,000 | Thank you. I have a few questions on the international side and then, if I may, a question on Dave Stockton's presentation and the simulations on Chart 15. But first, Karen, on Chart 10: I think these kinds of simulations are interesting, but I want to get you to say a bit more about a scenario that might at least be c... | 256 |
fomc | 2,000 | In the balance of payment statistics it is logged that way. It is not a huge number but, yes, it is counted as debt. | 28 |
fomc | 2,000 | It is getting pretty big! Depending on what the rest of the world does with regard to so-called dollarization, it could get quite large. I don't know how much the Russians alone acquired last year. The other dollar-denominated assets that foreigners hold--whether CDs or other types of deposits in our banks, mutual fund... | 261 |
fomc | 2,000 | You are reading in here a step that is not truly on a piece of paper. | 17 |
fomc | 2,000 | I know. | 3 |
fomc | 2,000 | That step is the notion that as this number gets very, very large it would inevitably have some consequences on people's willingness to hold dollars and would produce a 25 percent devaluation or a 5 percent devaluation or whatever. The analysis that I have here, the model that I am able to rely on, only works from one ... | 652 |
fomc | 2,000 | Okay, I accept that--and there is nothing in this simulation that suggests a change is imminent. Let me come at my question in a slightly different way, because I'm trying to understand this better. Let's start from the panel in the lower left where the exercise involves an assumption that the dollar is devalued by 25 ... | 137 |
fomc | 2,000 | I'll submit the euro, but I guess I'll throw that out. [Laughter] | 17 |
fomc | 2,000 | You'll never convince me. | 5 |
fomc | 2,000 | The Cuban peso! [Laughter] | 8 |
fomc | 2,000 | Think about the problem that the Japanese economy is confronting. I'm personally quite pessimistic about Japan, so I don't think anything positive is going to happen there any time soon. But all those people who are buying Japanese equities clearly feel differently and have felt so for a while. And the people putting u... | 170 |
fomc | 2,000 | Maybe the Japanese are all Ricardians! Let me ask Dave Stockton a question about Chart 15, if I may. These are interesting scenarios. This gets back, I think, to Governor Meyer's comment on the simulation differences between other forecast models and the staff's model. Under your scenario 1 in the staff's model, wouldn... | 237 |
fomc | 2,000 | In fact the underlying assumption here is that monetary policy accommodates this step-up in nominal GDP. There would be an increase in money growth to go along with that. Obviously, this is a short-run scenario. I think the simulations that are presented in the Bluebook tried to give a flavor of the case where we are i... | 170 |
fomc | 2,000 | Okay. But--and I think this is a very important point--the simulation does not allow the real interest rate to move up to the equilibrium level because you don't let the inflation rate come down. That is the way the model works. We don't get that automatic increase in the real rate that would come along with the decele... | 88 |
fomc | 2,000 | In the constant federal funds rate scenario, there is a very small increase in the real federal funds rate just because of the slightly lower inflation rate. But your point is exactly correct. | 36 |
fomc | 2,000 | Okay, thank you. | 5 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Karen, I have a question about Japan. Recently the Finance Ministry indicated that it might be borrowing at 2.1 percent as opposed to issuing 10-year bonds that would cost 1.6 percent. I have a few questions on this and I will try to sound objective in asking them. First, is this an astute financial strategy or is it a... | 195 |
fomc | 2,000 | The only information I have on this is from the New York Times article that I read. We have talked about this among the staff and have tried to figure it out. There are various hypotheses about how to understand what is going on, though I can't distinguish among them. And I put into this particular stew the fact that t... | 233 |
fomc | 2,000 | Right. | 2 |
fomc | 2,000 | So, one possibility is that this is a way to give the banks a bit more income. One might ask, as I have, whether the Ministry of Finance thinks that because this is a relatively more attractive instrument banks will provide more financing than they would have through the direct JGB route. If so, when all is said and do... | 452 |
fomc | 2,000 | Thank you. | 3 |
fomc | 2,000 | President Stern. | 3 |
fomc | 2,000 | Thank you. I have a question about the simulations as well, Mike. The Greenbook shows a baseline simulation and a flat funds rate simulation. As I look at the analysis, it seems to imply a sacrifice ratio of about one. In the Bluebook the sacrifice ratio is much worse. I am trying to understand what causes the differen... | 88 |
fomc | 2,000 | It is a different time period. Our sacrifice ratio in the Bluebook is calculated over a full ten years when all the lags work out. It might be very different in the short run than over the long run. | 44 |
fomc | 2,000 | Really? But it involves a difference of .8 percentage point --a .1 difference in the unemployment rate and a .7 difference in the PCE price number. | 33 |
fomc | 2,000 | In the short run the exchange rate dynamics exaggerate this response. That's probably an important element in getting an effect this big. | 25 |
fomc | 2,000 | All right. Then let me ask about the Bluebook sacrifice ratio. I don't know what your credibility assumption is, but it seems really high. | 29 |
fomc | 2,000 | It is a little higher than we've had in the past, but not much. It is consistent with the model looking out over the longer run. It is a fairly high sacrifice ratio, I think, compared to some other models, but it is not out of the bounds. The baseline simulation over the next two years has a 1 percent plus NAIRU gap an... | 233 |
fomc | 2,000 | One of the things we have pointed out before repeatedly in these model simulations is that the same output path generated through a different stock market assumption versus a different monetary policy assumption will have much larger expectational effects in the monetary policy case. It is quite plausible that if the F... | 124 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | I want to go back to Chart 10. Karen, it looks as though you have an assumed exogenous change in an endogenous variable. That's something I have spent 30 years trying to tell my students not to do! | 45 |
fomc | 2,000 | But I used a partial equilibrium model, so it's okay! [Laughter] | 16 |
fomc | 2,000 | I'm speechless! [Laughter] | 8 |
fomc | 2,000 | There is nothing about these simulations that is intended to suggest how the dollar would react or to cause changes in the dollar. This is simply a statement that says: If both foreign growth and U.S. growth were at potential, as best we know it, and if the dollar were to follow this path, this would be the outcome of ... | 84 |
fomc | 2,000 | I guess the question is: What can one learn from such an experiment when by its very nature, if it's partial equilibrium, it involves a whole lot of things that don't add up? The model that you have is now internally inconsistent. | 47 |
fomc | 2,000 | What I think one can learn from this analysis is that those who believe a return to stronger, more vigorous growth abroad will solve the external balance problem of the United States are mistaken. Unless the parameters that relate trade to its near-term determinants change a lot and change soon, it is not the case that... | 79 |
fomc | 2,000 | This contradicts to some degree what I was saying earlier in my comparison of various forecasts. But, if you look at outside forecasts, many of them have the net export balance reaching a nadir sometime this year--either flattening out or turning. And they have had this kind of pattern for a while. We have not been abl... | 116 |
fomc | 2,000 | President Hoenig. | 4 |
fomc | 2,000 | Mike and Dave, with respect to your simulations, let me ask something that I think has been hinted at around the edges in two or three previous questions. In the Greenbook prepared last time for our December meeting, you had an assumed increase of 75 basis points in the funds rate in the works. In this Greenbook you ha... | 124 |
fomc | 2,000 | I am not sure I would characterize scenario 1 in quite the same way you have characterized it. In fact, one could argue--and I think this may be what President Jordan was arguing--that in scenario 1 you fall further behind the curve in the sense that even though inflation is not picking up, the unemployment rate is fal... | 317 |
fomc | 2,000 | That's interesting. Thank you. | 6 |
fomc | 2,000 | Could I just follow up on that? In judging that probability you might want to indicate what the path of investment would have to be in the model to produce the capital deepening required to achieve that scenario, given that the capital deepening is what has been generating most of the uptick in trend productivity. | 61 |
fomc | 2,000 | That is true. But in this particular scenario, that faster productivity growth is generated in part through the more rapid multifactor productivity growth that we've had. And there's some addition to that from the capital deepening. So both of those factors are working here. | 51 |
fomc | 2,000 | To underscore that point, I hope all of you saw the pre-FOMC briefing from yesterday. Our multifactor productivity trend here pales by comparison to what has been experienced in some long periods of this country's economic history. So that could well be a component of a better productivity performance. | 57 |
fomc | 2,000 | Yes, but that's almost pulling something out of the hat in a way. It seems to me that the big story here is the increase in capital deepening. If you want to play the story out, I think you need to trace through what would be needed to get so much more capital deepening to produce that acceleration in productivity. | 67 |
fomc | 2,000 | But if one thought that this investment was merely the prelude to putting in place more efficient operations and so on, one might say the payoff in multifactor productivity still lies ahead. If one wants to be a new wave optimist here, it is certainly possible to come up with stories in which the assumptions are more g... | 107 |
fomc | 2,000 | There is an interesting interplay between what Karen was saying and what Larry has just said. The strength of the dollar in the face of this widening current account deficit is apparently the consequence of the increasing rate of return on facilities, which is related to capital deepening. That relationship has been fa... | 100 |
fomc | 2,000 | Just to grab onto one more string, though, it is possible that the buoyancy of the dollar has had something to do with what some might argue was a bubble situation in the equity market. So people may have exaggerated ideas of the prospective returns from these investments. | 53 |
fomc | 2,000 | Foreigners? | 3 |
fomc | 2,000 | Domestic and foreign investors. But foreigners are playing a role in this, investing in what they perceive to be very, very profitable U.S. ventures. | 30 |
fomc | 2,000 | Shall we break for coffee before it gets frozen? | 11 |
fomc | 2,000 | May I add one comment related to this? Going back to Karen's Chart 10, we have been doing a great deal of work on the current account deficit as a percentage of GDP. In a way the work we've done was driven by the notion that given almost any reasonable pattern one assumes for the world economy, the current account defi... | 391 |
fomc | 2,000 | As Herb Stein said, "If things can't continue, they won't." | 14 |
fomc | 2,000 | Right, they won't. | 5 |
fomc | 2,000 | Let's have coffee. | 4 |
fomc | 2,000 | If there are no further questions for our colleagues, would somebody like to start the Committee's discussion? President Jordan, do you have a question or-- | 30 |
fomc | 2,000 | I'm just volunteering to start the discussion. Banks in the District have reported that both commercial and consumer loan demand remained strong in nearly all the early weeks of the new year. In the mortgage area, while refinancing activity has dried up completely, mortgage loan applications jumped sharply in the past ... | 705 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Mr. Chairman, economic activity in the Twelfth District picked up at the end of last year, widening the gap in employment growth relative to the rest of the country. The underlying momentum is broadly based, but most notable is the strength in business services and construction. Business services added jobs at a rapid ... | 625 |
fomc | 2,000 | President Minehan. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. As we look back on 1999 in New England, we see an economy that has recovered from the shock of the Asian crisis to its manufacturing base. We see an economy whose construction, retail, and business and financial services sectors have experienced healthy employment increases. And we see an econo... | 1,870 |
fomc | 2,000 | President McTeer. | 5 |
fomc | 2,000 | Economic growth in the Eleventh District has been strengthening over the last few months. It turns out, after some revisions in the data, that employment growth was very, very slow in the first half of last year but picked up nicely in the second half. That pickup is expected to continue as Texas feels the lagged effec... | 588 |
fomc | 2,000 | St. Louis isn't one of them! | 8 |
fomc | 2,000 | President Moskow. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. The Seventh District economy entered the New Year with considerable momentum. To date, higher interest rates have had only a marginal impact on the traditionally interest-sensitive sectors like autos and housing. Auto producers expect 2000 to be the second best year ever for sales of light vehi... | 858 |
fomc | 2,000 | President Guynn. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Our Southeast region is healthy and the balanced expansion continues. The final data and the conversations that we have had with retailers tell us that the holiday selling season was a blockbuster one that clearly exceeded expectations and even the early estimates that we had. Tourism often giv... | 777 |
fomc | 2,000 | President Boehne. | 5 |
fomc | 2,000 | Thank you, Mr. Chairman. The regional economy in the Philadelphia District is strong. Retailing, manufacturing, and construction all are operating at high levels. Labor markets remain tight with the amount of overtime starting to become a political issue. The Labor Relations Committee of the Pennsylvania House of Repre... | 291 |
fomc | 2,000 | President Broaddus. | 5 |
fomc | 2,000 | The situation in our District is very similar to the one Jack Guynn and others described for the rest of the Southeast. By all accounts economic activity has expanded very strongly since our meeting here in December. Consumer spending was especially strong in the holiday season and remained robust in January. We have h... | 664 |
fomc | 2,000 | President Hoenig. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. The Tenth District economy has not changed appreciably since our last meeting and on balance remains very healthy overall. Labor markets do remain tight but wage pressures, though increasing, are not increasing dramatically that we can tell. Our agricultural sector continues pretty much as it h... | 645 |
fomc | 2,000 | President Stern. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. The District economy remains very strong and I won't go into the details except to comment on a few things that have changed or are in the process of changing in the District. There are five things that I want to mention briefly. First, on the banking side, bankers report that they are continui... | 472 |
fomc | 2,000 | Vice Chair. | 3 |
fomc | 2,000 | Mr. Chairman, the Second District's economy began the new year with strong upward momentum. Despite ongoing cost increases in housing and manufacturing, consumer price inflation has actually decelerated slightly. Unemployment rates in New Jersey, New York State, and New York City fell to 10-year lows at year-end, while... | 536 |
fomc | 2,000 | It strikes me that the cows need a privacy act! [Laughter] Governor Ferguson. | 18 |
fomc | 2,000 | It's hard to follow that, though I might say that as Administrative Governor I want to find out about these machines! [Laughter] The staff and I will discuss that later. In a more serious vein, at the end of the last meeting we stated that we would review the incoming data very closely for signs of imbalances. The data... | 630 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Our staff always serves us well and I believe they have done so particularly this time. I appreciate the inflation-targeting exercise done in the Bluebook, and I think there's a lot we can learn from it. As you all know, I have recently become interested in this approach to monetary policy as a... | 1,485 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | Mr. Chairman, I'll be very brief. I don't have anything to report in the St. Louis District that adds to what we already have heard around the table. My contacts at FedEx and UPS confirm very, very vigorous economies in Asia. Air cargo is at capacity coming from Asia to the United States and both FedEx and UPs are talk... | 198 |
fomc | 2,000 | Governor Meyer. | 3 |
fomc | 2,000 | I want to share with you some observations about the outlook that shape my views about the appropriate policy action tomorrow and the strategy that could guide us going forward. Given the uncertainty that we face about trend growth, NAIRU, and inflation dynamics, we've had to balance the risk that we might fail to take... | 1,072 |
fomc | 2,000 | Governor Kelley. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. The afternoon is getting on and by my tally I am the final speaker. But let me say a few brief words, if I may, about momentum in the economy and productivity, where the trends that have been in place for some time seem to be continuing, and about inflation, where it seems to me a change is now... | 626 |
fomc | 2,000 | Thank you. Let's adjourn until 9:00 tomorrow morning. | 14 |
fomc | 2,000 | Good morning, everyone. Before we turn to Bill Whitesell, let me remind you that Mike Prell would appreciate receiving any changes you might have in your individual forecasts by close of business Monday, February 7. Mr. Whitesell. | 48 |
fomc | 2,000 | Thank you, Mr. Chairman. This briefing provides background for the Committee's decision regarding the ranges for money and debt in 2000. I'll be referring to charts and tables in the Bluebook that have been distributed separately to you this morning. 3 The Humphrey-Hawkins report of last July noted that the growth rate... | 1,519 |
fomc | 2,000 | Questions for Bill? | 4 |
fomc | 2,000 | I am troubled by the idea--I know it was said last year and repeated again here--that faster productivity growth means we should raise the money growth ranges. I suppose in the 19th century if we had discovered we had faster productivity growth, we would have said we have to go out and dig gold at a faster rate. There ... | 313 |
fomc | 2,000 | Perhaps I can respond to that. I think you are absolutely right in the case of a temporary supply shock. We would not expect the concept of some long-run steady state condition to be altered if there were a transitory supply shock or temporary increases in productivity. If, in fact, you believe that the productivity gr... | 191 |
fomc | 2,000 | The part I am questioning is the linkage of saying we should adjust up the nominal growth of GDP; it's a sort of nominal spending effect. That was the point I was getting at yesterday with regard to Dave Stockton's simulation. To be clear about it we ought to be explicit rather than implicitly saying that we want a mon... | 143 |
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