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fomc | 2,000 | Second. | 2 |
fomc | 2,000 | We move to Dave Stockton and Vince Reinhart. | 10 |
fomc | 2,000 | Thank you, Mr. Chairman. We have received a considerable slug of data since we published the Greenbook last week. For the most part, those readings have had little effect on our outlook. We still estimate that real GDP rose about 2-1/2 percent at an annual rate in the third quarter and will rise about 3-1/2 percent in ... | 1,931 |
fomc | 2,000 | The outlook for foreign economies in the Greenbook should seem familiar. After all, it shares key properties with the past few projections prepared for the Committee this year. For one, the staff anticipates that economic growth in most major industrial economies and in the developing world will be solid over the next ... | 1,277 |
fomc | 2,000 | Thank you. Questions for our colleagues? | 8 |
fomc | 2,000 | Dave, over the past year the core CPI is up about 2-1/2 percent and the core PCE is up about 1.7 percent. Part II of the Greenbook suggests that the difference between these two indices is almost exclusively due to the imputed prices for non-price services like bank services. Given that, which index do you think is pro... | 81 |
fomc | 2,000 | I don't know whether that's a leading question or not! [Laughter] Actually, as we have said in the past, I believe it would be a mistake to rely on any single index. So, what we have tried to do in our analyses is to present some of the pros and cons of the various indexes for you, as policymakers, to consider in order... | 260 |
fomc | 2,000 | On medical care, of course, businesses tell us that they have seen huge increases over the last 12 months in terms of their costs. I'm not saying which one looks as though it's-- | 38 |
fomc | 2,000 | But you're talking about cost, not price. What's happening is that the physical volume of medical care is going up very dramatically. | 25 |
fomc | 2,000 | The usage has risen. But there's no doubt that when we budget for premium increases that we charge our employees, the increases are huge across the board. | 30 |
fomc | 2,000 | But a good part of that is improved medical care because the technology is moving at a very rapid pace. And it's pretty obvious that the actual health insurance premiums reflect far more than price. | 37 |
fomc | 2,000 | Sure. | 2 |
fomc | 2,000 | Indeed, there's a very serious question among a number of analysts in this area as to whether medical prices actually have been going down, not up. But there's no question that the dollar amounts are very large and very bothersome. | 45 |
fomc | 2,000 | And there is no doubt that, in some sense in our forecast, the increased costs associated with higher medical care insurance premiums being paid by employers do feed back through on the cost side of the equation into prices. Whether or not it's prices or quantity-- | 50 |
fomc | 2,000 | Through compensation? | 3 |
fomc | 2,000 | Yes, through compensation. | 5 |
fomc | 2,000 | Thank you. | 3 |
fomc | 2,000 | President Moskow. | 4 |
fomc | 2,000 | David, I had a question for you about productivity. We all know that labor markets are very tight now by historical standards and that productivity is increasing at very high rates by historical standards. We're in this slowing growth period now and anticipating some further slowing going forward. I wonder if you've gi... | 118 |
fomc | 2,000 | I'd say we've given more thought than hard-core analysis to this question. Obviously, one could imagine that we would see a greater cyclical weakening in productivity in tight labor markets, as firms perhaps would be very reluctant to shed workers given how hard it was to get these people on their payrolls. So that wou... | 370 |
fomc | 2,000 | We talk to the people at Manpower on a regular basis, and a comment our contact made to me this time is that their forecast for job openings, which I'll mention later, has set another record. There are a lot of openings that haven't been filled; they are just sort of sitting there. This is speculating on his part, but ... | 160 |
fomc | 2,000 | Yes, indeed. | 4 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | I have two questions. Around St. Louis we have some automobile plants that are shut down on temporary layoff. And I think we might want to be sure that we understand the shutdowns this week because this is the week of the employment survey. And if we have a substantial number of people on temporary layoff, that will sh... | 156 |
fomc | 2,000 | In terms of our forecast for November payrolls, we're looking for private payroll employment gains of about 130,000 and no gain at all in the manufacturing sector. Now, we think the spike we saw last week in initial claims for unemployment insurance was probably in substantial part a reflection of these temporary layof... | 405 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | I have two technical comments about the simulation occasioned by the last discussion. I've had trouble since I've been here with the baseline assumption on the federal funds rate. It's not quite a flat funds rate, though that simulation is presented. It's not quite anything, and it is hard to know just exactly what it ... | 195 |
fomc | 2,000 | We haven't. That would be relatively straightforward to do. Obviously, what that would show, taking off from our baseline forecast, is a lot more growth and more inflation. | 34 |
fomc | 2,000 | But again, maybe if you have an easier policy simulation, or something like that, there could be a footnote on just how this set of assumptions corresponds with the funds rate path from the futures market. | 41 |
fomc | 2,000 | When we think about trying to do those sorts of things, we also have the problem of what to assume about other asset market prices. If we adopt the path from the futures market curve, then what do we assume for stock prices or what should we do for the exchange value of the dollar? | 59 |
fomc | 2,000 | But, of course, it's the same market that is generating the futures market and the stock market. In a way that kind of problem makes it more difficult to interpret the present baseline. | 37 |
fomc | 2,000 | But we don't have as clear a road map for, say, the exchange value of the dollar or equity prices as we do in the money market futures curve. | 32 |
fomc | 2,000 | There's also a further conceptual problem as to whether the implicit model that's in the market is the same as the one we have. | 25 |
fomc | 2,000 | In some sense clearly it is not. | 8 |
fomc | 2,000 | Yes, it's like mixing apples and oranges here. You're taking one forecast and another rate assumption that's based on a different model and a different forecast. I think the comparison that is always worthwhile to make is to ask how your baseline federal funds rate forecast relates to what's in the futures market. But ... | 79 |
fomc | 2,000 | President Minehan. | 4 |
fomc | 2,000 | Going back to Mike Moskow's question, I was interested in your discussion of risks. On the up side there's a risk that I don't think you mentioned. You mentioned that productivity could grow at a greater rate than you expect. If there's a cyclical downturn in productivity or if our estimate of structural productivity i... | 235 |
fomc | 2,000 | The answer to that is yes, and my colleague Steve Oliner has undertaken such a calculation in terms of trying to weight where the various financing is taking place by the quality of the borrower. | 38 |
fomc | 2,000 | Did you come up with some assessment of relative financial tightness? | 13 |
fomc | 2,000 | We have some rough estimates. I wouldn't characterize them as anything more than that. What we actually did was to look at the movement in bond yields for investment grade borrowers and for speculative grade borrowers, looking at the whole group in each case. Then we tried to take a weighted average of those two that r... | 162 |
fomc | 2,000 | And there's also some widening of the spreads within the investment grade, too. | 15 |
fomc | 2,000 | There is, which is taken account of in this calculation that I just mentioned. So if we take a weighted average of how bond yields have moved since the beginning of the year, they're up about 70 basis points; and from the time of the last FOMC meeting, they're up about 30 basis points. There's wide variation around tho... | 105 |
fomc | 2,000 | Can you look back to, let's say, 1998 and compare that kind of weighted average with the weighted average that applied then? | 27 |
fomc | 2,000 | I can compare the weighted average that applied then versus where it stands now and it's up about 200 basis points from 1998. I'm not sure what you-- | 33 |
fomc | 2,000 | I'm trying to figure out the relative tightness in some analytical way as opposed to an anecdotal way. We hear plenty of anecdotes, but can we in some analytical way figure out whether the markets are as tight as they were during the credit crunch--or whatever we called it--after the crises of 1998? Or are they by some... | 77 |
fomc | 2,000 | That's a very hard question to answer. For the lower grade borrowers, the spreads now are as high and perhaps a little higher than they were in the fall of 1998. | 36 |
fomc | 2,000 | Right. | 2 |
fomc | 2,000 | But my sense is that the markets are not as disrupted now as they were in the fall of 1998. | 23 |
fomc | 2,000 | Right, that's what we hear anecdotally, too. I just wondered if there's a way to come to grips with that on an analytical basis. | 31 |
fomc | 2,000 | I haven't, but -- | 5 |
fomc | 2,000 | But as you know, in the economic literature on how these various credit channels affect spending, it's still pretty murky even after the earlier 1990 episode and the one in 1998. There is considerable debate as to how much credit supply conditions actually impinge on spending. We think they do, and we have tried to mak... | 98 |
fomc | 2,000 | I realize that. And you talked about the essence of the downside risk in a way that I completely agreed with. It certainly is one thing that has increased since the last meeting. | 36 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | I want to go back to the point that Ned Gramlich was making. It's true that with a different fed funds trajectory there would be issues about what to do with asset prices. But, of course, we have the same problem today because we have the market with this trajectory of expectations that are determining current asset pr... | 148 |
fomc | 2,000 | Any further questions? If not, who would like to start the Committee discussion? President Hoenig. | 20 |
fomc | 2,000 | Thank you, Mr. Chairman. Let me spend a little time on developments in our District. Growth across the Tenth District continues to moderate and some of the slowing appears to be the result of labor supply constraints. But there is also evidence that the pace of demand is slowing. Moreover, in talking with business lead... | 1,136 |
fomc | 2,000 | President Guynn. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. Economic growth in our Southeast region continues to be very healthy, although since our last meeting we have seen further evidence of moderation. Retail sales did actually strengthen somewhat in October and we've been told that they now appear to be on plan to reach last season's levels. At th... | 967 |
fomc | 2,000 | President Parry. | 4 |
fomc | 2,000 | Mr. Chairman, employment in the Twelfth District has continued to expand at a solid pace in recent months, although growth has slowed slightly from earlier in the year. District payrolls expanded by 2-1/2 percent during the third quarter, down about 1/2 percentage point from the pace recorded in the first half of the y... | 1,023 |
fomc | 2,000 | President Moskow. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. News from the Seventh District is similar to what I reported last time. We're continuing to get reports of slower activity from a large number of industries. Although the list of industries reporting a slowing in activity has not changed much since our early October meeting, economic activity i... | 789 |
fomc | 2,000 | President Stern. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. Overall business conditions in the Ninth District are generally consistent with what we've seen for several years now, although there are a few changes on the margin. First, employment gains continue and labor markets remain very tight. That's a familiar story. I think it's fair to say that the... | 501 |
fomc | 2,000 | President McTeer. | 5 |
fomc | 2,000 | Like that for the nation, the economy in the Eleventh District has begun to show signs of slower growth during the past couple of months. Both the energy and high-tech sectors have been positive factors recently but growth in the computer, electronics, and communications equipment industries has tapered off in recent m... | 549 |
fomc | 2,000 | President Broaddus. | 5 |
fomc | 2,000 | On balance, Mr. Chairman, our District economy is growing at a slower pace currently than at the time of our last meeting, although activity is still at a very high level. And labor markets in our region, as appears to be the case elsewhere in the country, are still very tight. According to retailers we survey each mon... | 1,141 |
fomc | 2,000 | President Minehan. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. New England remains on a relatively steady course of moderate expansion overall, but questions continue as to whether this moderation is a function of demand or supply factors. On the demand side some weakening is apparent in consumer buying, particularly of big-ticket items such as autos and h... | 1,235 |
fomc | 2,000 | President Santomero. | 5 |
fomc | 2,000 | There has been little change in my view of the state of the economy since our meeting six weeks ago. We have more complete data since that time and those data ratify earlier indications that economic growth has slowed from its very robust pace at the beginning of the year and that core inflation is accelerating. On the... | 1,569 |
fomc | 2,000 | First Vice President Pianalto. | 6 |
fomc | 2,000 | Thank you, Mr. Chairman. With one exception regional economic conditions in the Fourth District have changed little since our Beigebook report. Growth rates in several industries, particularly manufacturing, appear to be moderating toward growth rates that are more typical of the average growth rates we have been seein... | 1,196 |
fomc | 2,000 | Vice Chair. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. The Second District's economy has continued to expand at a moderate pace since the last report. Price pressures persist though they have become somewhat less pronounced recently. Private sector job growth accelerated slightly in the third quarter to a 2.1 percent annual rate while unemployment ... | 1,331 |
fomc | 2,000 | President Poole. | 4 |
fomc | 2,000 | Within the Eighth District I think we have, as Bob McTeer put it for his District, a fairly pervasive change in mood. The view is not that things are going down the drain but there is a pervasive sense of slower growth. In a meeting we had with St. Louis area investment professionals, that was the unanimous view expres... | 740 |
fomc | 2,000 | Governor Gramlich. | 4 |
fomc | 2,000 | Thank you, Mr. Chairman. There are times when it is relatively easy to be a central banker and times when it is relatively hard. It is easy when there are positive supply shocks and we have the luxury of choosing between lower inflation and lower unemployment. It can also be easy when all the world knows what should be... | 818 |
fomc | 2,000 | Governor Ferguson. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. Let me start by reassuring all of you that I am always happy there are 16 others here! [Laughter] Ned and I joined the Board at about the same time and obviously we have always enjoyed the input of our colleagues. On a more serious note, I find myself very much in sympathy with exactly what my ... | 309 |
fomc | 2,000 | It's slightly higher. | 4 |
fomc | 2,000 | Slightly higher, okay. So, I think the risk related to uncertainty in the oil markets is showing through in the pricing. I would also say--as I understand the configuration of output with respect to oil plus inventories plus refinery capacity--that it's really quite possible that once we get through the heating oil sea... | 936 |
fomc | 2,000 | Governor Kelley. | 3 |
fomc | 2,000 | Thank you, Mr. Chairman. It is now pretty well beyond question that the economy is in a slowdown, and this leaves us clearly facing new, quite different questions than those we have been grappling with over recent years. The fact that these new questions are precisely the ones we would have anticipated earlier this yea... | 612 |
fomc | 2,000 | Governor Meyer. | 3 |
fomc | 2,000 | There is in my view relatively little change in the outlook compared to the assessment at our last meeting. The data and developments we've seen since that meeting, however, do reinforce the expectation that we have transitioned into a period of below-trend growth. In addition they justify a small downward revision to ... | 961 |
fomc | 2,000 | Before we break, Dave Stockton wanted to make a comment. | 12 |
fomc | 2,000 | Yes, Mr. Chairman. It was an oversight on my part, in responding to President Poole's question about the difference between the policy outlook of the staff and the markets, not to have noted that it's quite conceivable that the markets are viewing 4 percent unemployment as sustainable. If we were to take that assumptio... | 110 |
fomc | 2,000 | Shall we break for coffee? | 7 |
fomc | 2,000 | Mr. Kohn. | 5 |
fomc | 2,000 | Thank you, Mr. Chairman. The information on hand since your last meeting indicates that growth has slowed more definitively to a pace below that of the economy's potential. And tighter financial conditions along with greater uncertainty about the profitability of new investment going forward should provide greater assu... | 2,226 |
fomc | 2,000 | Questions for Don? Governor Meyer. | 7 |
fomc | 2,000 | Don, I have a question about the analytical framework you used in the earlier part of your discussion. I may have misunderstood you but it seemed to me that you were saying that maximum sustainable growth is the translation of the objective of maximum employment--sort of identical to that in some sense. My reaction is ... | 122 |
fomc | 2,000 | Right. | 2 |
fomc | 2,000 | But inflation, given that we are perhaps already above where we'd like to be, is clearly pushing it away. | 22 |
fomc | 2,000 | The sustainable growth is intended, I think, to be consistent with changes in resource utilization. I agree that we can start, as perhaps we are now, with over-utilized resources. But suppose you already have in effect a restraining policy to bring resource utilization down. If you start from a position where you have ... | 112 |
fomc | 2,000 | That's absolutely fair. The question is how far along we are and whether that's a situation that would really be useful in 2002 or 2003 or whether it's relevant in the next several months. | 40 |
fomc | 2,000 | If you think of the "foreseeable future" as about a year, and you crank this through the staff forecast, I think you will find that inflation is creeping up and so is the unemployment rate. It depends on the weights you put on those two measures. But if you put roughly equal weight on them, taking account of the real f... | 177 |
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