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fomc | 2,000 | Coming at it another way, though, suppose we start in the next month or so to move the funds rate up as we approach that total increase of 125 basis points by the end of the year. At this point you don't consider that a description of too much, too long? | 57 |
fomc | 2,000 | No, definitely not. That is our thesis. As for whether it is correct or not, I can't provide any guarantees. | 25 |
fomc | 2,000 | But if you were going to assess the risks-- | 10 |
fomc | 2,000 | It is an installment, but we think you are going to need more installments down the road to really hold the line on inflation. Inflation will be tending to drift up as you move through the forecast horizon. | 41 |
fomc | 2,000 | What is the risk that it is too little, too late? | 13 |
fomc | 2,000 | Well, my concern--particularly in light of the developments in the last few days--is that the markets are entirely too comfortable with the policy of gradual increases in the funds rate. We may find that the stock market continues to trend upward and we do not get the negative wealth effect that we have in our forecast... | 192 |
fomc | 2,000 | President Jordan. | 3 |
fomc | 2,000 | Thank you. First of all, Mike, let me say that it really does look different from this end of the table where you used to sit! [Laughter] | 34 |
fomc | 2,000 | Clearer! | 3 |
fomc | 2,000 | But if I sound a bit disoriented and confused, remember that I've only been sitting here a little over an hour, whereas you had a lot of years to absorb the vision from here! When I look at the data in the Greenbook for the last four quarters, including the current quarter and assuming that the Greenbook forecast is co... | 264 |
fomc | 2,000 | We were expecting 5 percent nominal. | 8 |
fomc | 2,000 | Then I picture myself in the fourth quarter of 2001, say at the December meeting, looking back and saying: My gosh! The staff got it exactly right in terms of nominal GDP, real GDP, and all of the other variables in these Greenbook tables for the six-quarter period starting in the third quarter of 2000 and running thro... | 284 |
fomc | 2,000 | We've made a few mistakes in the past! [Laughter] So we could be making a mistake this time. We could be making a mistake this time even if we had been perfect in the past. But in essence our judgment is that the rise in interest rates has to some extent reflected the pressures of an extraordinary expansion in aggregat... | 323 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Vince, beginning in 1999 and continuing through 2001 the foreign real GDP growth rates are quite strong, especially in the industrial countries. Would you characterize this primarily as a cyclical development or is there an indication that perhaps some of the "new economy" developments, which c... | 90 |
fomc | 2,000 | I think a significant fraction of the higher growth for 1999 and 2000 is cyclical because by our estimate there are output gaps to be worked down in many of the industrial countries. And the fact that foreign growth in 2001 moderates in our forecast really suggests that we couldn't find the new economy effects working ... | 235 |
fomc | 2,000 | Let me just add a footnote. You made the point that we see foreign growth slowing; that happened as well in our own forecasts for the U.S. economy. So it may be that you would not find signs of the new economy in the macro forecast. But looking at different sectors in the economy could result in a forecast that is more... | 110 |
fomc | 2,000 | And one reason we've been looking for it harder in the last couple of months is that, in fact, equity prices have risen so much in many parts of Europe. And the better performance of IT-sector equities relative to the major indexes also has some precedent in the U.S. data. | 57 |
fomc | 2,000 | Thank you. | 3 |
fomc | 2,000 | In a country like Finland, which is presumed to have a major rise in and a disproportionate share of high-tech usage, do we see it in their output per hour figures? | 36 |
fomc | 2,000 | That was one of the small countries in Europe that I had in mind. There is an OECD study that looks at a few of the peripheral countries and argues that the trend in output per hour has picked up in them. | 44 |
fomc | 2,000 | What would be the order of magnitude? | 8 |
fomc | 2,000 | Right now it is relatively modest. I don't have the numbers in front of me, but I think it is on the order of 1/2 percentage point. | 33 |
fomc | 2,000 | President Moskow. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Mike, I wanted to ask you about the wealth effect assumptions in the Greenbook. I am particularly interested in what you are assuming about the carryover effect of the increases in the stock market that we saw in 1999 and in previous years. You are assuming a flat stock market in the baseline a... | 129 |
fomc | 2,000 | Well, that is all folded in there. That is a reflection of the distributed lag of those effects. | 21 |
fomc | 2,000 | How powerful are the increases in previous years on this year's consumption? | 13 |
fomc | 2,000 | Were it not for those lagged effects we'd have a negative effect this year on balance. But we still have a good part of the effect of the 1999 rise in particular impacting the economy this year. | 42 |
fomc | 2,000 | Why are they turning negative then? | 7 |
fomc | 2,000 | The stable stock market means that the ratio of wealth to income is falling. And that's the indicator on which one would base an anticipated drag on consumption. | 30 |
fomc | 2,000 | What's involved is the distinction between the level and the growth of consumption. There will no longer be an impetus from wealth adding to or boosting consumption growth, although the earlier wealth effect will still be supporting the level of consumption. So just from the fact that the stock market levels out, we no... | 65 |
fomc | 2,000 | I understand that, but I would have thought the impact of the previous years would have had a larger impact this year because I know the effects don't occur just within that one year. | 36 |
fomc | 2,000 | In the first half of this year we are getting a substantial effect. But at this point it is decaying and in the second half of this year it will have disappeared. We expect to get a very large proportion of the effect within the first year and a half, and it diminishes after that. | 61 |
fomc | 2,000 | What was the effect in the first half of this year? | 12 |
fomc | 2,000 | Roughly a percentage point. | 7 |
fomc | 2,000 | We got over a percentage point in the first quarter and then, in our forecast, it slips down considerably in the second quarter. So, we have a little over 1/2 percentage point effect on the PCE growth in the first half, which trails off to about roughly down 0.1 or 0.2 percentage point in the second half. Part of the r... | 158 |
fomc | 2,000 | Thank you. | 3 |
fomc | 2,000 | President McTeer. | 5 |
fomc | 2,000 | On page 9 in Part I of the Greenbook is a paragraph labeled "Prospects for the supply side of the economy and inflation." It's nice to see the supply side covered there. The first sentence says: "The expansion of aggregate supply has been substantial, but nowhere near enough to match the advance of demand." I'm not sur... | 123 |
fomc | 2,000 | No, basically it's pointing to levels of resource utilization. Whether we look at the unemployment rate or industrial capacity utilization, in both cases the level of utilization has been rising. So, by definition in essence, the growth of aggregate supply has been less than the growth of aggregate demand. | 56 |
fomc | 2,000 | It looks to me as if you've said that the growth was the same but we are just running out of potential for further growth in supply or something like that. MR. PRELL I guess I'm more comfortable putting it the way I did. And as you noted, one could also point to evidence on the wage and price side that is confirming th... | 72 |
fomc | 2,000 | Does anybody else have a question or comment? Would somebody like to start the discussion? President Broaddus. | 22 |
fomc | 2,000 | Mr. Chairman, the information we have this month from our District is not very different from what it has been for the last several meetings. We've seen a few signs of a possible moderation in consumer spending. The pace of car sales has decelerated in several parts of the District, following the national pattern to so... | 1,035 |
fomc | 2,000 | President Minehan. | 4 |
fomc | 2,000 | Thank you very much, Mr. Chairman. Growth in New England remains remarkably strong. Employment continues to grow at a rapid rate, just below the pace of the nation. And unemployment rates for the region as a whole, as well as for three of the District's states, are at all-time lows. Reflecting this and in some ways ech... | 546 |
fomc | 2,000 | President Moskow. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. The Seventh District economy continues to perform quite well, but the tone of reports from our contacts has changed recently, as several noted some slowing in activity. A growing number of firms indicated increasing cost pressures and some new reports emerged related to tight labor markets. In ... | 1,044 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. The Twelfth District economy has continued its robust expansion so far this year. California's economy remains on a strong growth path, spurred by unusually rapid gains in income and consumer spending. During the first four months of this year, employment increased at a 3-1/2 percent pace, well... | 805 |
fomc | 2,000 | President Guynn. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Overall economic conditions in our Southeast region are little changed since March. Growth continues to be moderately strong. We can still find only scant evidence in either the regional data or anecdotal reports of any significant slowing as a result of our earlier tightening moves. Consistent... | 880 |
fomc | 2,000 | First Vice President Stone. | 5 |
fomc | 2,000 | Thank you, Mr. Chairman. The Third District's economy is continuing to grow, with accelerating employment growth and a declining unemployment rate, which just brings us to about the national average. Recently we completed a series of meetings with bankers and businesspeople throughout our District, and the message is t... | 833 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | Mr. Chairman, in the Eighth District the stories that I hear as I wander around the District are very much the same as they have been for the last six months or so. I do get a sense that two things are perhaps a little different. One is that I hear more reports of what people are touting as a one-shot wage catch-up. In... | 828 |
fomc | 2,000 | President Stern. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. The Ninth District economy remains very strong for the most part and, if anything, we've seen an intensification of existing trends. Employment gains have been sizable. At the same time, people report that it has become even harder to find prospective employees across the skills spectrum. Help ... | 567 |
fomc | 2,000 | Vice Chair. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. The Second District economy grew at an exceptional pace in the first quarter, but there are scattered signs that growth is moderating in the current quarter. Price and wage pressures persist, though there are still no clear signs of a broad-based acceleration in consumer prices. Employment grew... | 719 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Some members of the Committee have discussed our monetary policy in terms of real interest rates--that if productivity shocks raise real interest rates, we must raise nominal interest rates a like amount to avoid flooding the economy with liquidity. While I cannot quarrel with this argument qua... | 1,418 |
fomc | 2,000 | President Hoenig. | 4 |
fomc | 2,000 | Mr. Chairman, the Tenth District remains generally healthy. Employment growth is still running around 2 percent and we have an unemployment rate of about 3 percent. But I thought I would take just a minute to convey some anecdotal information on the District, which supports what Mike Moskow said in his comments in that... | 741 |
fomc | 2,000 | President Jordan. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. On several recent road trips through the District to host meetings for bankers, I had the impression that in at least one dimension there has been a distinct slowing. And that is that the spring crop of orange traffic barrels has been the best ever and is coming close to the objective of blocki... | 1,873 |
fomc | 2,000 | President McTeer. | 5 |
fomc | 2,000 | Overall economic growth in the Eleventh District remains quite healthy. However, a few signs of slower growth in response to higher interest rates are just beginning to appear. At our board of directors meeting last Thursday, we heard more of a mixed picture on the economy than we have in quite some time. In the Dallas... | 686 |
fomc | 2,000 | Governor Ferguson. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. In light of the time I will shorten what I otherwise would have said, but I do want to say a couple of things. First, I agree with others that the incoming data since we last met generally support our ongoing vigilance and concern on the inflation front, but to me those data do not indicate tha... | 1,177 |
fomc | 2,000 | Governor Meyer. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. The Bluebook gets to the heart of what has changed and what has not changed since our last meeting. I quote: "... incoming data suggested both that aggregate demand had continued to grow more rapidly than potential supply and that wage and price developments were becoming more worrisome." So wh... | 288 |
fomc | 2,000 | I will take half a loaf! | 7 |
fomc | 2,000 | But this is a good point for me to say how much I have valued your presentations to the Committee during my tenure here. And you really ended on a high note today! So, what has changed? Well, first of all utilization rates have increased slightly further. There should not be any surprise about that. As long as demand i... | 807 |
fomc | 2,000 | Governor Kelley. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. Once again it seems that the basic conditions facing the Committee are little changed from those prevailing at the time of the most recent several meetings, except that perhaps many now familiar concerns have been escalating further. The economy has turned in another remarkable quarter, and rec... | 357 |
fomc | 2,000 | It is a little late but let's go for coffee if it's there. It is probably iced coffee at this point! | 23 |
fomc | 2,000 | Mr. Lindsey. | 4 |
fomc | 2,000 | As indicated in the Bluebook, the issue today would appear to be not whether to continue to tighten monetary policy at this meeting but rather by how much. At the March meeting, the Committee contemplated future firming, and its public statement conveyed its sense that the balance of risks was pointed toward higher inf... | 1,544 |
fomc | 2,000 | What actually happened, in basis points, to the federal funds futures rate for June as a consequence of the CPI release? | 24 |
fomc | 2,000 | I have the May figure; I do not have the June figure. Does someone have that? | 19 |
fomc | 2,000 | What is the May figure? | 6 |
fomc | 2,000 | The May figure as of about 11 o'clock this morning was 6.225 for the futures rate. | 22 |
fomc | 2,000 | I just want the change. | 6 |
fomc | 2,000 | Let me give you yesterday's. We had 6.23 for May, although that was rounded. | 21 |
fomc | 2,000 | And what do you have now? | 7 |
fomc | 2,000 | We have 6.225 now. A significant change that also affects the calculation of odds is not just this futures rate but, believe it or not, today's spot rate. That rate is 6.4375, or 6-7/16 percent. So those are the two relevant new pieces of information that we got today that affect these odds. | 72 |
fomc | 2,000 | Further questions? President Jordan. | 6 |
fomc | 2,000 | David, you started with a reference to the risks at our last meeting as we stated them but also to the forecast and discussion of the risks around the table. But then you ended with the focus on the interpretation of our statements of the balance of risks. Isn't it the case, as long as there are lags--and maybe long an... | 192 |
fomc | 2,000 | I'm not sure that the sentence on the balance of risks refers to the month ahead or even the next few months. | 23 |
fomc | 2,000 | That is why I am raising the question. | 9 |
fomc | 2,000 | Exactly. In the case you cited, that really is an issue the Committee would have to confront. That is, the Committee may expect inflation rates for the next three months to continue on the high side at least, though maybe not rising, and then ebb down. The question the Committee would then face is what to indicate with... | 157 |
fomc | 2,000 | Let me follow up. Suppose my own model had really long lags--I used to think the lag was about two years--and I think that the stance of policy today affects the inflation rate in 2002. And my guess is that inflation is going to rise for the next year and a half no matter what we do, just due to good old-fashioned mome... | 105 |
fomc | 2,000 | I may actually wish to turn to other members of the Committee to answer that! [Laughter] | 20 |
fomc | 2,000 | Let me step into the staff role here. What we've worked hard on in developing this language is to try to get in this concept of the "foreseeable future," which is clearly meant to be longer than the intermeeting period and longer even than after the next meeting. As the working group and the Committee talked about this... | 192 |
fomc | 2,000 | May I ask from that whether it is intended to be interpreted that we could at some point say with this action we now see the risks as balanced? | 30 |
fomc | 2,000 | That is intended to be a possibility, yes. It is also quite possible, though, that we might say we have taken this tightening action but we still do not see the risks as balanced just yet. However, the reason we have not tightened further, obviously, is that we are waiting for incoming data and a variety of other thing... | 188 |
fomc | 2,000 | If I could just interject to answer the Chairman's earlier question, the June federal funds futures rate fell a basis point today. It is now at 6.475. | 35 |
fomc | 2,000 | Further questions for David? If not, let me focus on the previous conversation because it really covers the issues that I think confront us. My own judgment, and what I plan to recommend to the Committee, is that we have an opportunity now to move the funds rate up 50 basis points, remain asymmetric, and effectively ad... | 2,332 |
fomc | 2,000 | Mr. Chairman, I support your conclusion. Let me address myself to the concern about "sweaty palms." We have to remember that the mission that we have been given by the American people is to provide a monetary policy appropriate for sustainable economic growth through price stability. The demand in the economy is simply... | 325 |
fomc | 2,000 | President Hoenig. | 4 |
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