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fomc | 2,000 | But if you think about what our problems in monetary policy formulation are, regrettably it does get down to this level because we're forecasting the future. And how the future will respond depends on how we define the existing structure that is driving the interrelationships in the economy today. And I think it is ver... | 75 |
fomc | 2,000 | All I'm saying, Mr. Chairman, is that I think there is a different possible conception of how these relationships work, which I don't have fully worked out in my mind. I have a sketchy idea, and I don't think it all has to flow through this mechanism. | 55 |
fomc | 2,000 | Clearly there are alternate means of doing this. I was merely commenting about the suggestion that when you eliminate the NAIRU, the wage rate and inflation become indeterminate. I don't think that's right; that's all I'm saying. | 45 |
fomc | 2,000 | I don't know whether David Reifschneider would know the answer, but I'm sure he could produce an answer for us. Take a wage equation, Dave, in which in essence there is complete hysteresis that says last period's unemployment rate is this period's natural rate. Is there a determinate inflation rate in the model? | 66 |
fomc | 2,000 | No, I don't think there is unless you pin down-- | 12 |
fomc | 2,000 | Pin down? Well, the expectations become a function of that relationship. | 14 |
fomc | 2,000 | No, I think there is another way of doing it. One way would be to pin down expectations by an assumption about the response of monetary policy. But if you don't pin that down because you are specifying monetary policy in terms of some--I'll just say "arbitrary"--federal funds rate, then that doesn't solve out. | 66 |
fomc | 2,000 | That is absolutely true. | 5 |
fomc | 2,000 | I think we are making this discussion more complicated than necessary. We are not saying, "Let's throw away this whole wage dynamics model," but rather the question is what is the value of the NAIRU. That becomes very important. Nobody could dispute that. | 52 |
fomc | 2,000 | President Jordan. | 3 |
fomc | 2,000 | I don't know if this is going to be helpful or not! [Laughter] Instead of talking about the unemployment rate, which is a highly visible, highly politicized figure, I was going to cast the question slightly differently. Once a month people in a government agency go out and take a snapshot of the inventory of individual... | 290 |
fomc | 2,000 | You have recast the question, but it involves a gross correlation in the data that Larry was pointing to--the GDP gap and the unemployment rate and the acceleration of prices. I would argue that our downward revision to the natural rate of unemployment--from the 5-3/4 percent or so that we had a number of years ago to ... | 322 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Dave, the Greenbook mentions that core consumer inflation will be boosted this year by higher energy prices. I assume that next year, as energy prices come down according to the Greenbook forecast, core consumer inflation would be reduced. Could you give me some idea of the size or the precise effects of that on the co... | 67 |
fomc | 2,000 | Roughly speaking, depending on the particular model that we look at, we think between 0.3 and 0.4 of the acceleration over the past year could be attributed to the indirect effects of accelerating energy prices. Then, in 2001 when those prices retrace, we get some of that back, which is part of the reason why in our fo... | 104 |
fomc | 2,000 | To try to understand what is happening to core inflation, I think it's important to make those adjustments because, when the effects of energy prices are factored in, it looks as if we have a really significant acceleration that begins in 2001. | 49 |
fomc | 2,000 | The acceleration is a much steadier upward process than one sees in our forecast, which might give a slight impression that things are topping out a bit in 2001. | 34 |
fomc | 2,000 | That's exactly my point. Thank you. | 8 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | More on this NAIRU issue: First, I assume that Don Kohn is going to talk about Chart 7 in the Bluebook. I guess I am one who does not want to throw away the whole NAIRU model, but I do wonder about the estimates. I'll point out two things about Chart 7. One is that the NAIRU there is about 4.6 percent, so it is still a... | 256 |
fomc | 2,000 | As for how sure we are, the answer is our usual answer: There is a wide range of uncertainty. The model that we use, as you probably know, is the so-called stock adjustment model for the demand for labor. So our view, as I noted and as we said in the Greenbook, is that even though output growth decelerates, hiring will... | 173 |
fomc | 2,000 | And this is a period where we still have a lot of investment coming on stream? | 17 |
fomc | 2,000 | Yes. | 2 |
fomc | 2,000 | And an increasing share of it is high-tech. | 10 |
fomc | 2,000 | Yes. The slowing in overall labor productivity is all happening, in an accounting sense, as a slowing in total factor productivity. The capital deepening component is still surging ahead because we are at such high levels of investment. | 45 |
fomc | 2,000 | Vice Chair. | 3 |
fomc | 2,000 | In his comment a few moments ago, Don Kohn pointed out the degree to which this projection also depends on the model's forecast of a fairly significant depreciation of the dollar. The first quarter should remind us that the appetite of foreigners for investing in the United States seems to be huge. I doubt that anybody... | 220 |
fomc | 2,000 | If I might just put a footnote on that: From the point of view of, say, Chart 7 or some of the others, the comparison of the baseline to the alternative that is being depicted is, loosely speaking, independent of what we've assumed about the dollar. How much difference the alternative makes to the baseline is what thos... | 187 |
fomc | 2,000 | I think a crucial element in here, which carries through to a lot of different areas, is whether we are still to a significant degree involved in technological expansion. If so, the ex ante rate of return on new facilities is either high or still rising, and it does two things. It engenders a very large increase in cap... | 195 |
fomc | 2,000 | Dave, in light of this discussion, it might be helpful if you could just refresh our memories about your estimate of the NAIRU as it is now and the kind of confidence interval you have around it. I presume there's an upside as well as a downside risk to it, despite the recent experience. It might be helpful to have tha... | 70 |
fomc | 2,000 | Our current point estimate is about 5-1/4 percent. As I indicated earlier, that is down from the 5 3/4 percent to 6 percent range we had before. We do see upside and downside risks to that estimate. In the paper by Flint Brayton and David Reifschneider circulated to the Committee through Don Kohn a few weeks ago, I thi... | 194 |
fomc | 2,000 | Okay, can we start the Committee discussion? Who would like to begin? President Parry. | 19 |
fomc | 2,000 | Thank you, Mr. Chairman. The Twelfth District economy has continued to expand at a rapid pace. The employment growth rate of 3.6 percent so far this year is above the national rate of 3 percent. Employment growth was especially rapid in April and May, with the surge in the latter month largely due to the hiring of temp... | 761 |
fomc | 2,000 | President Moskow. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Since our May meeting, the number of reports suggesting slowing in activity seems to have increased, but our assessment is that the Seventh District economy is still quite healthy given that the slowing has been from high levels of activity. Housing industry contacts describe activity as still ... | 1,124 |
fomc | 2,000 | President Minehan. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Economic activity in New England continues to be vibrant. The region's job growth, though below that of the nation, is above its long-term trend, and unemployment in the area is the lowest of any region in the country. Prices as measured by the Boston CPI rose in the latest month at a rate bett... | 979 |
fomc | 2,000 | President Guynn. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. I would now characterize economic growth in our Southeast region as moderately strong, with some emerging signs of slowing. Let me first indicate what is different and what feels different from the situation at the time of our last meeting. The most obvious and persistent signs of slowing are i... | 1,022 |
fomc | 2,000 | First Vice President Stone. | 5 |
fomc | 2,000 | Thank you, Mr. Chairman. Some signs of slower growth have begun to emerge in the District's economy since our last meeting, most notably in manufacturing. The region's manufacturing activity slowed sharply in June based on reports concerning both shipments and new orders. Other sectors where modest signs of slowing hav... | 733 |
fomc | 2,000 | Thank you. President Jordan. | 6 |
fomc | 2,000 | Thank you. The best way to summarize the sentiment of executives of older manufacturing industries in our region is "hostile." Following the surprisingly strong demand that we saw in the second half of last year and the first quarter of this year, it was probably inevitable that the inflection from that, when it came, ... | 1,399 |
fomc | 2,000 | President Broaddus. | 5 |
fomc | 2,000 | Thank you, Mr. Chairman. Like many others who have commented this morning, in looking at the regional information we've received since our last meeting I've tried to focus particularly on whether the District evidence is consistent with the national evidence that the expansion may be slowing a bit. And to some extent I... | 956 |
fomc | 2,000 | President Stern. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. As far as the Ninth District economy is concerned, the objective measures of economic activity remain very positive. Let me just give you one fairly familiar example of this. Over the past year employment gains have continued to be substantial; and unemployment rates in virtually all District s... | 587 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | Mr. Chairman, my anecdotal information from the Eighth District suggests that the situation is largely as it has been, except for some modest--and I emphasize modest--slowing in the housing sector. I found the reports from my contacts at FedEx and UPS interesting because both of them talked a lot with customers about t... | 1,005 |
fomc | 2,000 | President Hoenig. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Let me begin by noting that economic activity in the Tenth District is still very solid. Having said that, it is also true that we are seeing mounting evidence of slowing trends within the region. It starts with manufacturing, which certainly has slowed, with firms clearly reporting smaller usa... | 829 |
fomc | 2,000 | President McTeer. | 5 |
fomc | 2,000 | The economy in the Eleventh District has begun to show the same signs of slowing as the rest of the country. Retail sales decelerated in May, which contacts attribute to higher interest rates and weakness in the stock market. Private employment growth has been weaker, although this may be the result of Census workers c... | 754 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. It seems to me that this meeting is much more about NAIRU than any of the other meetings we've had, at least in the recent past. Until now the real economy has been rocketing ahead at a seemingly unsustainable rate and there was at least a whiff in the air that underlying inflation was picking ... | 1,060 |
fomc | 2,000 | Governor Kelley. | 3 |
fomc | 2,000 | Thank you. Mr. Chairman, we've been seeking a slowdown in the expansion for a long time and perhaps we have it at last. Often when the economy moves into what could be a paradigm shift, this Committee must go through a period when it is uncertain about how to read the course of events. This appears to be such a time wh... | 742 |
fomc | 2,000 | Governor Meyer. | 3 |
fomc | 2,000 | As you know, I love talking about macro modeling and I love talking about NAIRU, and I like talking about the outlook too. But first things first. Let me start by responding to President Poole's comments about whether there might be two different models of the causal process of what determines inflation. I think there ... | 1,752 |
fomc | 2,000 | Governor Ferguson. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. I suppose I'm fortunate that I have never tried to make a living as a forecaster because it's easier for me to look at the incoming data as opposed to trying to throw it out. And based on what I've seen, my view is similar to what others have said in that I believe there are some early signs of... | 965 |
fomc | 2,000 | Vice Chair. | 3 |
fomc | 2,000 | Mr. Chairman, economic growth in the Second District is minusculy slower than it was the last time we were together, but the slowing is almost imperceptible. As I interpreted the comments of other Reserve Bank Presidents, I think the slowdown in the Second District is not as much as that in other Districts, On the ener... | 1,049 |
fomc | 2,000 | Thank you very much, everybody. Just as a reminder, the dinner at the British Embassy is at 8:00 p.m. tonight. There will be Board vans at the Watergate at about 7:30 p.m. to pick you up. Is there more than one set of cars? Does anybody know whether or not those who are late and miss the 7:30 p.m. scheduled departure h... | 91 |
fomc | 2,000 | Several vehicles will be there. | 6 |
fomc | 2,000 | There will be several vehicles. We will see you all at dinner and then again tomorrow morning at 9:00 a.m. | 26 |
fomc | 2,000 | Good morning, everyone. We have arrived at the agenda topic relating to the long-term ranges for the monetary aggregates. As you know, this topic stems from the Humphrey-Hawkins legislation--a term we no longer use except in an historical context. Don proposed putting the long-run ranges for the monetary aggregates on ... | 589 |
fomc | 2,000 | Mr. Chairman, could I make a quick comment? I don't disagree with your proposal. It is certainly true that in these meetings the operational importance and significance of the money targets has diminished steadily over the years. And it is tempting to think of dropping them as a sort of non-event. But I think it is imp... | 253 |
fomc | 2,000 | Actually, I agree with that. But I think we can resolve that issue without going through the formal process that has been required under statute. I don't see any reason why we can't have something on the agenda, which essentially involves a discussion of the long-term inflation imbalances or whatever we want to call it... | 177 |
fomc | 2,000 | No, there is no reason we couldn't do that. I actually thought we wouldn't change the format of these meetings significantly since the Committee has been spending at most a half-hour or so on the monetary aggregates. Just in terms of preparation for your Congressional testimony twice a year, I thought the Committee mig... | 101 |
fomc | 2,000 | So there is no reason why we can't utilize the half-hour we used for arguing about the numbers and how they are perceived and instead talk about the real substance of inflation. | 34 |
fomc | 2,000 | Yes, there's absolutely no reason. | 7 |
fomc | 2,000 | That would certainly help me a lot. I think that would be very desirable for the Committee to do. I would go one step further. Just speaking for myself, I would rather see a formal institutional substitute for the topic of the money targets rather than just a discussion, although I certainly think the latter would help... | 196 |
fomc | 2,000 | You mean a recommendation to the Congress? | 8 |
fomc | 2,000 | Yes, after due deliberation and consideration here. Even if it doesn't fly, it would still provide you with an opportunity, Mr. Chairman, to restate and reinforce a view that I believe is a widely held consensus in the economics profession. That view is that putting inflation first gives us not only the best inflation ... | 76 |
fomc | 2,000 | I agree with that last statement. But it is still too soon to make a judgment as to whether official inflation targeting actually works. And we won't be able to make that judgment unless such targeting is tried by a diverse group of countries and we can determine that those with official inflation targeting did better ... | 322 |
fomc | 2,000 | I certainly respect your point of view, Mr. Chairman. I would simply hope that we would keep some inflation targeting proposal at least in our back pocket, or maybe even in our front pocket. I'd look for an opportunity to advance that view because for me at least it is an uncomfortable situation not to have some kind o... | 85 |
fomc | 2,000 | I fully agree. I think the way the statute is written is essentially the result of a Congress that over the years has had considerably divergent views that they could not square. And what we got was a statute that was designed to do all things for all people so long as it was good. I would be the first to go up to the ... | 143 |
fomc | 2,000 | We have to build a case. | 7 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | Mr. Chairman, I was going to make a comment very similar to the one that Al Broaddus made. I think the discussion of monetary targets has been a highly imperfect way of nevertheless getting at an important point on which we ought to have some agreement around this table--namely, what the inflation target is that the Co... | 274 |
fomc | 2,000 | Actually, I'd characterize the nuances that are involved in a slightly different way. If we took a vote on whether, all other things equal, we around this table would like to see the inflation rate lower than it is today, I bet we would get unanimity. Where the differences will show up is at what cost or tradeoffs. Tha... | 741 |
fomc | 2,000 | Mr. Chairman, I agree 100 percent with the substance of what you said. Let me suggest a procedure. I think there is great benefit to our practice of discussing the goals and strategy of monetary policy in detail twice each year. I say that because at most of the other meetings, even though we wander in and out of discu... | 269 |
fomc | 2,000 | Governor Meyer. | 3 |
fomc | 2,000 | I always look forward to these opportunities to have broader discussions on long-term goals and strategies, and I agree with the Vice Chair that it would be good to do this on a regular basis at each of these two-day meetings. Let me give you a few thoughts on both the monetary aggregates and inflation targeting. I agr... | 769 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | I have enjoyed the discussion, too. Let me cut it a slightly different way. On the inflation targeting issue I think there are three levels on which we can confront this. One is internally in our own heads. At that level I actually find inflation targeting quite useful. I have often thought in terms of that and in my s... | 404 |
fomc | 2,000 | Governor Ferguson. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. I want to express agreement with what I take to be the main message of Governor Gramlich's remarks and also the Vice Chair's statement. Also, I agree with your proposal to move away from voting on ranges for the monetary aggregates since we haven't really been following them very closely. But o... | 600 |
fomc | 2,000 | Any further comments? Well, assuming that legislation proceeds in the form we expect, why don't we endeavor to have such a discussion at the next appropriate meeting. Presumably, we will continuously alter the focus and get closer to the Committee's general view of the type of discussion we want to have. Let's move on ... | 77 |
fomc | 2,000 | Thank you, Mr. Chairman. As background for your discussion today, you received a paper by Flint Brayton and Dave Reifschneider that used the FRB/US model to examine the economic performance of the U.S. economy in recent years. Not surprisingly, their work suggested that a continuing pickup in productivity provided the ... | 2,310 |
fomc | 2,000 | Questions for Don? | 4 |
fomc | 2,000 | Don, in reading the Bluebook and listening to you now, it seems that a critical part of the analysis involves a wage-lag hypothesis. At a micro level the idea--this is not your language but the way I interpret it--is that the value of the marginal product of labor as individuals has risen but there may be some lag in t... | 415 |
fomc | 2,000 | I agree with the first part of what you said in terms of describing what is going on here. Basically the initial returns from the innovation in productivity accrue to the owners of capital, to the businesses who wake up one morning and realize that there are efficiency-generating capital investments and changes in prod... | 506 |
fomc | 2,000 | Can I follow up, Mr. Chairman? I have two points on that. The more we believe that the distribution is quite different between the owners of capital and workers--and that certainly is true to some extent--the more trouble we have with wealth effect arguments as the catalyst stimulating consumption. If the workforce and... | 209 |
fomc | 2,000 | I think we perceived that worker insecurity, at least initially in this productivity pickup, was another reason why wages tended to lag, aside from the stickiness of wages relative to prices. But one would think that that insecurity has been overcome, in light of an extraordinarily low unemployment rate and very tight ... | 95 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Don, I think the long-run simulations were interesting and useful and helped us to consider some of the strategic issues we face. The longer-run simulations assume that the value of the dollar falls rather sharply after 2001--by approximately 5 percent per year, I think. That boosts the path of the fed funds rate that ... | 121 |
fomc | 2,000 | It is a significant factor and I tried to indicate that in my briefing. I don't have a simulation that has everything else the same and holds the dollar constant. But as I mentioned to the Committee yesterday, I had asked our modelers to run what they call the "rosy scenario" simulation, which had both a lower NAIRU an... | 230 |
fomc | 2,000 | I would, in the sense that the 5 percent number gets one's attention shall we say. It is not that we have a view that a 5 percent decline is necessarily going to happen or that we have even a clue as to when the decline would start or how fast it would proceed. The problem is that in order to do a simulation with relat... | 383 |
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