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fomc | 2,001 | I guess I come in on the other side, in that this seems to me an accurate statement of fact. I think the markets will understand what we saw that led us to make a move. I also agree with the Vice Chairman that we shouldn't try to send too many signals. I believe this statement is a fairly accurate description of our di... | 79 |
fomc | 2,001 | Governor Kelley. | 3 |
fomc | 2,001 | Mr. Chairman, I'd like to support Governor Meyer, particularly on softening the statement at the very end of the second paragraph. I believe "threatens to keep the pace of economic activity unacceptably weak" is a bit stronger wording than we need to use. I think the language he suggested, "continues to weigh on the ec... | 77 |
fomc | 2,001 | Yes, the language in this draft was from our previous statement, as you know. | 17 |
fomc | 2,001 | Well, I think it would be good to have a different statement. That's a good reason to change it. | 22 |
fomc | 2,001 | Any other comments at this stage? Governor Gramlich. | 11 |
fomc | 2,001 | I basically support the statement. I might note that there are actually three changes from the previous statement, as I remember it. First, we dropped the "alert" sentence. Secondly, as Tony mentioned, fewer Banks are listed as having put in for the discount rate reduction. And third, unlike the last statement, this on... | 150 |
fomc | 2,001 | Let me suggest the following. Frankly, I think Governor Meyer's suggestion is an improvement and unless there's an objection, we'll just make that change and put in his wording. Let's then have a Committee decision on two possibilities: One is to go with this statement with that correction; the other is to craft a stat... | 107 |
fomc | 2,001 | I happen to have something handy, just in case! This one modifies the end of that sentence at the bottom of page 1. It says: "Although measured productivity growth stalled in the first quarter, the impressive underlying rate of increase that developed in recent years appears to be largely intact, which together with th... | 76 |
fomc | 2,001 | And we offer that in the month of June? | 10 |
fomc | 2,001 | That's the key question, whether in fact we move to a statement in line with Al Broaddus's proposal today or in June. I think it would be helpful to get members' preferences--I assume everyone is in agreement that we ought to do it--for May or June. Let's quickly call the roll and see what we get. | 68 |
fomc | 2,001 | What is their expression of opinion? | 7 |
fomc | 2,001 | May or June. | 4 |
fomc | 2,001 | Yes, just say May or June on including this sentence. | 12 |
fomc | 2,001 | Okay. Chairman Greenspan | 5 |
fomc | 2,001 | May. I beg your pardon--June. [Laughter] | 13 |
fomc | 2,001 | Maybe you'd like a punch card ballot! [Laughter] | 12 |
fomc | 2,001 | That's better than a butterfly! Sorry about that. | 10 |
fomc | 2,001 | The Chairman voted June? | 5 |
fomc | 2,001 | I voted June. | 4 |
fomc | 2,001 | Vice Chairman McDonough June Governor Ferguson June Governor Gramlich June President Hoenig May Governor Kelley June Governor Meyer June | 23 |
fomc | 2,001 | Is that including the change I suggested in that paragraph? | 11 |
fomc | 2,001 | We've got your change in. | 6 |
fomc | 2,001 | President Minehan May President Moskow May President Poole May | 12 |
fomc | 2,001 | I'd just remind people that we said essentially the same thing at the end of January, so it's not new. | 22 |
fomc | 2,001 | Six-four, close. | 5 |
fomc | 2,001 | The vote was six to four in favor of June. | 11 |
fomc | 2,001 | So be it. Yes, President Minehan. | 10 |
fomc | 2,001 | Could I just add a comment? I'm getting increasingly nervous about these statements. They are getting longer and longer and we have a total of five minutes to look at them yet they end up making a big difference in how our policy action is received. We spent it seemed to me months working on a statement of risks, which... | 102 |
fomc | 2,001 | Yes, I think that's a valid point. What we probably ought to do is cut these statements all the way back. We can't do it now because we've already voted. But your point, which I think is a relevant one, is not that this should be short. You're saying that to the extent we are using the statement as an indication of our... | 98 |
fomc | 2,001 | Right. | 2 |
fomc | 2,001 | I think we have to do one of those two things. And sending out statements around here would just be awful! | 23 |
fomc | 2,001 | I think it would be very hard. | 8 |
fomc | 2,001 | I believe we ought to consider cutting the statement back very substantially. Okay, the next meeting is June 26th and 27th. Remember, we are invited to the British Embassy on the evening of the 26th. | 46 |
fomc | 2,001 | Mr. Kos. | 4 |
fomc | 2,001 | I'll be referring to the package of colored charts that was distributed this afternoon.1 U.S. short-term interest rates have continued to decline during the intermeeting period, reflecting weaker-than-expected economic data and weak corporate earnings reports. Three-month cash rates fell 33 basis points since the last ... | 1,908 |
fomc | 2,001 | Questions for Dino? | 4 |
fomc | 2,001 | Does your currency forecast make any explicit assumption about currency demand as we head toward the end of the year and the launch of the euro as the currency in Europe? | 32 |
fomc | 2,001 | Not explicitly. Some noise may be created so it may have some effect. But we think it's likely to be very small, or at least that's the assumption embedded in the forecast. | 36 |
fomc | 2,001 | Well, there has been some anecdotal speculation that the countries that are outside the euro area--where very large amounts of deutschemarks are held and no provisions have been made for conversion--may find alternatives in either Federal Reserve notes or travelers checks or something, at least temporarily. I've been t... | 94 |
fomc | 2,001 | It's possible that we may see that effect, but it's very hard to measure and to forecast so we have not really included it in our projections. Sandy, do you have anything to add? | 38 |
fomc | 2,001 | To the extent that we have seen a slowdown in the reflow of cash from abroad, it has been incorporated in the forecast. But we didn't build in an explicit addition to growth related to the euro. Our analysts are following the pattern of foreign currency demand, but they haven't added anything extra, in terms of it esca... | 81 |
fomc | 2,001 | If that did happen, that would make the Desk's burden even bigger. | 15 |
fomc | 2,001 | The data I remember seeing through April--I don't know that we have shipments data through May--from several large banks that specialize in this kind of activity did not show any pickup in net shipments to any of these countries. We looked specifically for that. Now it's very early before the launch of the euro currenc... | 86 |
fomc | 2,001 | Well, the anecdotes were all over the place by April and May. So the fact that the shipments didn't in fact increase would suggest that the anecdotal reports are a little exaggerated. | 36 |
fomc | 2,001 | President Poole. | 4 |
fomc | 2,001 | On page 4, in the panel showing the VIX index, as I understand it there's some seasonality in that index--or at least I heard some market commentary to that effect. Do you have any idea what is normal for the summer? It's usually lower in the summer, as I understand it. Secondly, is that just a 30-day volatility? If so... | 85 |
fomc | 2,001 | That's right. I'm not familiar with the seasonal characteristics of this index, but the pattern we have seen is that it tends to run between the low 20s--perhaps the high teens--and the low 40s. So on an absolute level, it's fairly low, and I think it's interesting to note that the trend has been heading downward. I do... | 106 |
fomc | 2,001 | Yes, I understood that was the reason you put it in there. But my question had to do with its normal seasonal pattern. So before we reach a conclusion about what that index suggests, I think we better know what the usual seasonality is. I don't know the answer to that. | 58 |
fomc | 2,001 | Again, there may be some seasonal there. I don't know that it's so pronounced that it would affect the index in a meaningful way. | 27 |
fomc | 2,001 | I don't know one way or the other either. Okay, thank you. | 15 |
fomc | 2,001 | Further questions for Dino? I assume there are no objections to his request to go forward in the manner he described relevant to municipal and foreign issues. If I hear none, I assume that it's perfectly fine. | 41 |
fomc | 2,001 | Mr. Chairman, I move approval of the domestic operations. | 12 |
fomc | 2,001 | Without objection, they are approved. We now go to a series of very interesting studies on the issue of productivity. Dan, will you be starting it off? | 32 |
fomc | 2,001 | Yes. Thank you, Mr. Chairman. In response to the wishes of the Committee for a discussion of productivity developments, the staff will be presenting three briefings this afternoon. Sandy Struckmeyer and I will discuss the staff's view on structural productivity and potential output. Jeff Fuhrer will present the perspec... | 2,148 |
fomc | 2,001 | Dan has described the data that we use in our analysis of the supply side of the economy. I will outline our methods for estimating the rate of growth of structural productivity and potential output. Referring to the top of chart 4, the starting point for our analysis is the simple observation that the growth of labor ... | 1,605 |
fomc | 2,001 | I'd like to begin by thanking Don Kohn and Sandy Struckmeyer for inviting the Boston Fed to give its perhaps aberrant views on productivity developments. I'd also like to start off by emphasizing that I am a productivity optimist. I believe that the creation, adoption, and adaptation of new technologies over the past t... | 2,613 |
fomc | 2,001 | Thank you. I'd also like to thank Don and Sandy for giving me the opportunity to speak today. It seems my job is to talk about a less optimistic period of productivity performance. As we all know, productivity growth in the nonfarm business sector was noticeably slower from 1973 to 1995 than in earlier or later periods... | 1,562 |
fomc | 2,001 | That was extraordinarily effective, gentlemen. I think you ought to be pleased that you coordinated so well. Let me raise a few questions myself. You've all raised basic conceptual problems and I think the major concern that you expressed relates to the fact that the input data are not adjusted for intensity of use in ... | 1,146 |
fomc | 2,001 | Mr. Chairman, may I respond? | 8 |
fomc | 2,001 | By all means. | 4 |
fomc | 2,001 | I have a couple of comments. I personally like Jeff's last chart. And rather than viewing this as a vice of the staff's approach, we think it is a virtue. I'd point to the Okun's law chart, which is my last exhibit, Chart 5. When we've used this approach over the last year or so, we really haven't been off too far in o... | 225 |
fomc | 2,001 | Sandy, let me just ask you this. I vaguely recall that we used to employ Okun's law to estimate potential. If you start in that direction and work backwards, it's going to generate this particular relationship. | 44 |
fomc | 2,001 | Well, it is an iterative process. [Laughter] | 12 |
fomc | 2,001 | I appreciate your-- | 4 |
fomc | 2,001 | Mr. Chairman, let me add one thing on the income-side numbers. In addition to the material we presented, we have done this analysis using the gross domestic income data. I can tell you what that would produce for Chart 3, which shows that labor productivity growth picked up from 1.5 percent in the earlier 1973-95 perio... | 216 |
fomc | 2,001 | Mr. Chairman, may I make one comment about Jeff's picture as well? What Jeff hinted at in his remarks, but it doesn't actually show in the chart, is that the techniques that he used--and indeed that we used ourselves before last summer--were techniques that in a period of improving productivity are going to result in a... | 426 |
fomc | 2,001 | Well, maybe the problem is that we're using the term "productivity" to explain all of this but what you're explaining is the use of a structural model to forecast certain internal variables that are the determinants of the level of output in the relatively short run. The words one uses to explain it probably are not re... | 177 |
fomc | 2,001 | I think we recognize that. | 6 |
fomc | 2,001 | There is some of that. | 6 |
fomc | 2,001 | Also, the kinds of questions one might want to address with these various analyses are different. I remember President Minehan asking early on in this process about whether we would use this for a 10-year forecast. We indicated "no," because we're thinking in some sense about a higher frequency notion of what is struct... | 132 |
fomc | 2,001 | I might add parenthetically that we often show negative numbers for multifactor productivity. If we truly mean that as knowledge or some form of technical capability, the presumption that we forget the wheel or some particular major advance somehow just doesn't seem-- | 48 |
fomc | 2,001 | But that number is not just knowledge. It's knowledge plus errors and cyclical behavior, too. | 19 |
fomc | 2,001 | Well, even if you cyclically adjust it, you can still get negative numbers. I would call it errors plus knowledge rather than the other way around. | 31 |
fomc | 2,001 | At some risk--maybe when the Chairman speaks for me, I should just keep my mouth shut and leave well enough alone--I just want to try to clarify one point. And that is that I don't think we're actually as far different in our concept of what productivity is as you might be suggesting. I would not as an operational matt... | 209 |
fomc | 2,001 | Let me raise one final question, which really gets to the issue of capital stock. Our capital stock numbers are heavily influenced by decisions about what spending should be capitalized and what should be expensed or written off. Security analysts apparently believe that writing off items increases the market value of ... | 245 |
fomc | 2,001 | Mr. Chairman, I'd like to offer a couple of comments and then end with a quick question. I liked these papers very much. I thought they were quite helpful. For me at least, the bottom line is that the confidence interval around any current estimate or projection of structural productivity growth is fairly wide. I can't... | 674 |
fomc | 2,001 | In some of the papers you've received over the years, and in the Bluebook this time, I think there are some hints of that. The model's estimates of the effect of trend productivity growth on r*, the real federal funds rate, are more than one-for-one because of the big effects on demand. The supply effects on equity pri... | 340 |
fomc | 2,001 | Thank you. | 3 |
fomc | 2,001 | President Poole. | 4 |
fomc | 2,001 | In thinking about Jeff Fuhrer's chart with the highly variable structural productivity, I believe we can make good sense of that if we go back to the growth accounting equation on Chart 2. In my view the problem here is that we have tended to proceed by thinking about a potential GDP track, which involves labor force g... | 370 |
fomc | 2,001 | That's why I question all of these declining output per hour figures that are implicit in the decomposition of data for medical services and business services originating in the gross national product. But I'm equivocal on the issue of legal services. [Laughter] | 48 |
fomc | 2,001 | One of the issues for those who try to study productivity on a sector-by sector basis lies in the difficulties of identifying inputs and outputs sector by sector. I think Denison's position was that one has to go to an aggregate level rather than to try to specify productivity sector by sector; the latter ends up being... | 76 |
fomc | 2,001 | Well, that's only partially true because staff here addressed that question with input-output analysis and found that many of the measurement anomalies are in industries that primarily sell to final users. I noted earlier, for example, that one of the problem industries is health services; but the bulk of the output of... | 101 |
fomc | 2,001 | What I'm getting at is the problem of taking aggregate productivity and assigning it to sectors. For example, Bob Gordon has argued that it is very difficult to sort out the productivity of the airlines from that of the aircraft manufacturers because changes in the quality of the aircraft affect both. Trying to disting... | 64 |
fomc | 2,001 | That argument is accurate when one is looking at the contribution to the total productivity. But we do learn things about output per hour within sectors because profitability within a sector does rest on it. Whether or not the productivity in aircraft manufacturing gives us lower input prices for aircraft services is a... | 125 |
fomc | 2,001 | Right, it's telling us that the measures of outputs and inputs are strange. | 15 |
fomc | 2,001 | No, actually I think that is a different issue than we're discussing here about the accuracy of the data. | 21 |
fomc | 2,001 | Well, let me make one other point. I think that perhaps what we need from this analysis is a sense of the standard errors in this process. How much uncertainty do we face? Is there some kind of trend or standard investment outlook that would help us to separate out this uncertainty about the capital accumulation? Then ... | 121 |
fomc | 2,001 | I think that is a very good suggestion. One would want to know not only the standard error of the invested capital accumulation but its covariance with the multifactor productivity as well. | 35 |
fomc | 2,001 | I have no idea. No doubt that is a very difficult thing to do, but I'm trying to distinguish the separate aspects of this problem. | 28 |
fomc | 2,001 | President Parry. | 4 |
fomc | 2,001 | Mr. Chairman, I'd like to ask the authors to comment about the paper that we all received by John Fernald of the Chicago Federal Reserve Bank. It seems to me that the inclusion of adjustment costs is theoretically a justifiable inclusion. In terms of that paper, it certainly results in a decidedly more optimistic view ... | 131 |
fomc | 2,001 | Let me start. Indeed, the standard growth accounting approach doesn't take account of adjustment costs. The usual argument for that and why it evolved that way is that originally the approach was used for looking at growth over very long periods--looking at one twenty-year segment compared to another twenty-year segmen... | 363 |
fomc | 2,001 | Well, when you think about how we use structural productivity growth in terms of policy, it involves a shorter timeframe. And the assumption that I think we are making--that the adjustment cost is zero--probably is not an optimal assumption. | 47 |
fomc | 2,001 | Vice Chair. | 3 |
fomc | 2,001 | Mr. Chairman, I'm prompted by your unkind remarks about lawyers to note that it was suggested that the jury is still out on these issues. If your initial remarks are meant to be the charge to the jury, that jury is going to be out for a long time! [Laughter] Charlie Steindel mentioned and I think in his presentation ma... | 287 |
fomc | 2,001 | President Stern. | 3 |
fomc | 2,001 | I'm interested in the following issue. It's my impression that we have not seen this acceleration in trend or structural productivity in any other large industrial economy, at least so far. If that's true, I think that's potentially important because that would suggest that something unique is happening in the United S... | 120 |
fomc | 2,001 | May I refer you to a Bulletin article last October in which members of the Board's International Finance Division researched that question on other industrial countries? They came to the conclusion that there was no convincing evidence of accelerating productivity growth in other countries. They offered some conjecture... | 60 |
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