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fomc | 2,001 | Thank you. David, on Chart 5 labeled "Fiscal Policy," in the lower right-hand corner the unified budget surplus for fiscal year 2001--for this fiscal year, which is three-fourths over--is shown as $185 billion. I recall seeing the other day that the Treasury reported a surplus for the month of April alone of $190 billi... | 119 |
fomc | 2,001 | I'm not sure exactly. You're citing, I suppose, the monthly Treasury statement figures. And if those figures are right, that's exactly what our forecast would be anticipating. We have also heard from the Treasury that receipts are coming in weaker than had been expected, and we've tried to factor that in. But there cou... | 76 |
fomc | 2,001 | Yes, but from that standpoint--abstracting from the fiscal year and the full calendar year issue--your interpretation would be that at least for the near term there is going to be less fiscal drag and more fiscal stimulus for the balance of the calendar year? | 51 |
fomc | 2,001 | Probably yes, though I'm not quite sure. To gauge the overall effects on the economy one would want to look at the monthly flow of spending and receipts. So I would be more comfortable looking at a more aggregated level. Another factor that is affecting the pattern of these figures somewhat is a shifting of corporate t... | 183 |
fomc | 2,001 | I would say that the unified budget surplus forecasts in the Greenbook suggest that on a not seasonally adjusted basis the third quarter is about in balance and the fourth quarter is a slight surplus. But the seasonal pattern this year isn't significantly different from other years, aside from the $38 billion outflow. ... | 112 |
fomc | 2,001 | Part of the reason I'm asking is because the huge tax payments that were made in April by businesses and households, which were coming out of the private economy and into the government side of the economy, are behind us now. From this point forward, at least for the calendar year, we don't have that flow impact. | 63 |
fomc | 2,001 | Incidentally, do we have a fiscal 2003 unified budget estimate consistent with the current data we have here? | 23 |
fomc | 2,001 | We don't yet because we have not yet extended our forecast out to 2003, but we will be doing that in the next few months. | 29 |
fomc | 2,001 | President Hoenig. | 4 |
fomc | 2,001 | Thank you. This is just a clarifying question on Chart 8, the middle panel. In your discussion you suggested, I think, that the spark that created the movement down in investment started with telecommunications and then moved over to real E&S spending other than high-tech. Did I hear you correctly when you were referri... | 80 |
fomc | 2,001 | What I was trying to do was to lay out some theory on the timing, or the sequence in which these events might have unfolded. | 27 |
fomc | 2,001 | I ask because activity in the manufacturing sector was probably declining even before the downturn in the high-tech sector. So I had it reversed in a sense. I'm just having a hard time following your theory exactly in terms of this downturn and I wonder whether there are any implications if I disagree with you on that-... | 76 |
fomc | 2,001 | I would hate to go to the mat on that issue without having a chance to look at the data first. My sense is that the gist of this channel, as shown in the middle chart, is that by and large a sort of traditional accelerator mechanism seems to have operated here. One element that is unusual, though, is that many people p... | 176 |
fomc | 2,001 | There is no doubt that many manufacturing firms also have been under intense pressure from competition abroad, given the strength of the dollar. We saw that by the declines in a variety of areas outside of the tech area as well. We do think that was also an important element in promulgating this weakness. | 59 |
fomc | 2,001 | I just wanted to make sure I heard it right. | 11 |
fomc | 2,001 | Governor Ferguson. | 3 |
fomc | 2,001 | Back on the tax cut issue: You make an assumption--rightly, I think-- about how much of the spending is going to come out of inventories. But I don't see anyone suggesting that any of the spending is going to be used for imports, which in a mathematical sense would be a drag on GDP. How should we think about that? Is t... | 102 |
fomc | 2,001 | Well, we've looked at the numbers a bit. We don't have any analysis that would enable us to say that these tax rebates will be spent differently than other consumption dollars are spent. But we did look at the historical track of imports as a percent of consumption and it has been rising. It's not possible to calculate... | 181 |
fomc | 2,001 | Governor Gramlich. | 4 |
fomc | 2,001 | I, too, thought the capital overhang paper was very good. Among other things, it moved my knowledge of fiber optics from 0 to 1 percent, a big increase! But as I look at Chart 7, I'm troubled by something. As best I can tell from drawing lines, the capital overhang began to open up about 18 months ago, right around the... | 191 |
fomc | 2,001 | Well, there are a couple of elements that I can throw out. One is, as we tried to emphasize in the report, that these gaps that open up between the estimated target and the actual capital exert some drag on aggregate demand. And at least if you believe the model estimates--though I could give you a long list of reasons... | 234 |
fomc | 2,001 | May I jump in? I think one of the other points that has been made in this area--you've made it before but you didn't make it this time--is that this type of capital tends to depreciate relatively quickly compared to some other types. I assume that's part of your thinking as you consider how this gap might start to clos... | 75 |
fomc | 2,001 | Yes, but that's really only true on the left side, the high-tech side. And there is a big gap in the other than high-tech E&S spending. | 33 |
fomc | 2,001 | Right. | 2 |
fomc | 2,001 | So your story is that the gap may be with us for a while, but that doesn't mean that investment won't be recovering? That's basically it. | 29 |
fomc | 2,001 | Yes, you can see it in the upper right panel of David's chart. If those estimates are to be believed, we have had a gap for a decade. We had growth of investment over that period as well. It's always tempting, when we're in a period of extremely slow growth or even a downturn in activity, to wonder how we will ever get... | 194 |
fomc | 2,001 | May I just ask a question about the regression analysis used in creating your target? In the upper right-hand panel, the target is a calculated number coming off a regression, I presume, fitted to the actual data? | 43 |
fomc | 2,001 | Fitted to the actual data and estimated in a system of four equations involving these two elements of equipment plus nonresidential structures as a third and inventories as a fourth. | 34 |
fomc | 2,001 | If you take the trend out, which gives you a nice fat correlation, it looks pretty awful to me. How can you be confident that what you have is truly excess? If you were dealing with rates of return or something like that, perhaps you could somehow demonstrate that the rates of return are falling--that you're getting le... | 89 |
fomc | 2,001 | I could never plead guilty to feeling comfortable with something as far removed from what ordinary business decision makers see as their reality. If I were to try to defend this as best I could, I'd say that one piece of corroborating evidence is that if we look at average periods over which there has been an overhang-... | 165 |
fomc | 2,001 | That I can understand. | 5 |
fomc | 2,001 | I guess I managed to take some comfort in that, maybe more frankly than from these model estimates. | 20 |
fomc | 2,001 | Is there any way you can back out the excess? Essentially, what we mean by overhang is capital that is not yielding its rate of return in the way President Poole was raising the question. Since we do have profits data by industry and we have capital by industry, isn't there a way to infer whether or not the capital is ... | 111 |
fomc | 2,001 | I don't think I can answer that on the spot, but I'll certainly think about that. It's an interesting question. | 23 |
fomc | 2,001 | The reason I raise the issue of looking at it in terms of individual industries, rather than on a macro basis, is that there are five or six major sectors of the economy for which we do have profit margins and, I would think, effective data on capital stock. President Broaddus. | 59 |
fomc | 2,001 | I have a detail question on Chart 12. Karen, in those panels on the right, exports for Western Europe are bucking the trend. Why is that? | 33 |
fomc | 2,001 | Well, it is the case that for longer than any other region of the global economy Western Europe believed itself to be protected, in a sense, from some of the negative consequences of what was going on. In part that was because--they would allege--the region is a largely self-contained and relatively closed economy and ... | 366 |
fomc | 2,001 | President McTeer. | 5 |
fomc | 2,001 | Karen, you mentioned that Japan may be getting to the point of implementing some reforms that might be helpful. Did you see the article in the Wall Street Journal by Jeff Sachs and Paul Krugman? | 40 |
fomc | 2,001 | That one I missed. I've been reading many in the last two days. | 15 |
fomc | 2,001 | Well, they basically said the patient is so sick that the medicine might kill it, so Japan should be careful. They were making the argument that austerity type measures may be too harsh for Japan and the country may not be able to handle it. | 50 |
fomc | 2,001 | It's the same argument they've been making for a year--that the Japanese have to pump up the money supply, however they do it. | 27 |
fomc | 2,001 | There's a cadre of people within Japan who are arguing that there is a sequencing issue--recovery and reform or reform and recovery. There are reasonable people--and I consider Krugman and Sachs on some days to be reasonable--on the side that says recovery and then reform. The problem with that argument, of course, is ... | 89 |
fomc | 2,001 | The other problem with the argument is that it's wrong. | 11 |
fomc | 2,001 | Well, it has been tried for 12 years and nothing has happened! | 15 |
fomc | 2,001 | It hasn't worked yet anyway, but the 13th year might be the charm! | 17 |
fomc | 2,001 | Do they just fritter away their ammunition by doing things on too small a scale for a long period of time? | 23 |
fomc | 2,001 | Well, there's some possibility of that. The other concern is that it doesn't necessarily answer your question about whether the patient can tolerate the medicine. It does not mean that if they aggressively undertake reform that the patient won't die, in the sense of having some significant negative and socially disrupt... | 249 |
fomc | 2,001 | Governor Kelley. | 3 |
fomc | 2,001 | Thank you. Let me return for just a minute to the projection for restored growth next year. It's pretty clear that the impetus for that is going to come from fiscal and monetary policy and maybe the cessation of this inventory cycle. You have essentially a trend growth projection for next year of around 3.5 percent gro... | 122 |
fomc | 2,001 | In some sense, Governor Kelley, as we showed in the charts, we do think that in the near-term fiscal policy is going to be providing a boost to an already weak economy. | 37 |
fomc | 2,001 | Right. That's where the impetus comes from but where does it manifest itself? | 15 |
fomc | 2,001 | As we move through the second half of the year, we are looking for some impetus on the consumer spending side and through the eventual cessation of the inventory correction. We think monetary policy will be providing some support as we go through the year and into next year in helping to maintain the reasonably high le... | 171 |
fomc | 2,001 | Well, next year will be fairly balanced then, if I'm hearing you correctly in terms of where the growth is going to show up. | 27 |
fomc | 2,001 | Next year will be fairly balanced. We are still getting some depressing effect on consumption from the wealth effect. It's not pushing growth further down, but it is a factor keeping the growth of consumption running below the growth of income. But yes, by the middle of next year we think growth will look more balanced... | 66 |
fomc | 2,001 | Okay. I think it's about time we recessed. Let me remind you that we have a dinner at the British Embassy this evening. The Board vans will be at the Watergate Hotel at 7:00. Cocktails are scheduled at 7:30. I presume that we can leave our papers here. This room will be made secure, so you don't have to worry about lug... | 94 |
fomc | 2,001 | Good morning, everyone. We are now at the point on our agenda where the Committee's discussion of the economy begins and I'm looking for volunteers. President Jordan. | 32 |
fomc | 2,001 | Thank you. Now that I have volunteered, all I have to do is find my papers! [Laughter] Sorry, I wasn't quite prepared. I would like to comment first by providing some general impressions about economic activity in the District. As one of our Business Advisory Council members said, we are "bumping along the bottom." Act... | 1,596 |
fomc | 2,001 | President Guynn. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. While our Southeast economy is still showing modest growth, it has slowed further since our last meeting. We continue to look for some first signs of a rebound, but have not seen them yet. The economist who led off the regional part of my briefing for this meeting started his presentation with ... | 1,536 |
fomc | 2,001 | President Moskow. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. Economic activity in the Seventh District is much the same as I reported last time--sluggish. Most industry contacts in traditional manufacturing characterize their industries as bumping along the bottom, similar to what Jerry Jordan said about his District. There is a little difference from th... | 1,071 |
fomc | 2,001 | President Parry. | 4 |
fomc | 2,001 | Mr. Chairman, the Twelfth District economy decelerated in recent weeks, with slowing evident in most states and sectors, although the growth rate of California exceeded by a substantial margin the growth rate of Ohio. [Laughter] Job growth in the District in April and May averaged 0.7 percent at an annual rate, for a n... | 894 |
fomc | 2,001 | President McTeer. | 5 |
fomc | 2,001 | The slowing of the Eleventh District economy intensified in April and May. Our regional statistics have finally caught up with the reports we've been getting from our directors, Beige Book contacts, and others. The Texas unemployment rate rose to 4-1/2 percent in May and now stands just above the national rate after fi... | 854 |
fomc | 2,001 | President Santomero. | 5 |
fomc | 2,001 | Thank you, Mr. Chairman. Since our May meeting the main change in the economic outlook for our region is an improvement in expectations about future economic conditions. Overall, economic activity continues to edge up. News on manufacturing in our District is somewhat better than that for the nation. While manufacturin... | 1,144 |
fomc | 2,001 | President Minehan. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. Meetings with our Bank's directors, our small business advisory council, and members of a local high-tech-heavy quality group, taken together with discussions with area CEOs and reports from our Beige Book contacts provide similar insights about regional economic activity. That is, despite the ... | 1,478 |
fomc | 2,001 | President Stern. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. I've commented for some time that the District economy has been performing much like the national economy, and that continues to be the case. The weakness and problems are concentrated in the manufacturing and mining sectors where activity is clearly declining. Labor market conditions are easin... | 414 |
fomc | 2,001 | President Broaddus. | 5 |
fomc | 2,001 | Mr. Chairman, I think our District's economy has weakened since the last FOMC meeting. All the information we get on manufacturing suggests that that sector, at least in our region, is continuing to decline and that the decline may have accelerated a bit in recent months. We also conduct a monthly manufacturing survey,... | 1,073 |
fomc | 2,001 | President Hoenig. | 4 |
fomc | 2,001 | Mr. Chairman, not a great deal has changed in the Tenth District. Our economy does remain sluggish, as it was at the time of our May meeting. Manufacturing overall remains in the doldrums. Capacity utilization continues to decline and plant managers say that they are still working with inventories that they feel are to... | 1,052 |
fomc | 2,001 | President Poole. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. My conversations with officials at FedEx and UPS lead me to describe the situation as being essentially unchanged since the last time I talked with them. My FedEx contact said that the firm's customers are expecting flat volume for the next three to four months; FedEx sees business as essential... | 2,575 |
fomc | 2,001 | Vice Chair. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. Before I comment on the Second District I would like to say that I think that assessment of the market's interpretation of the balance of risks statement is completely wrong. I believe the market looks at incoming data and tries to evaluate what the Federal Reserve will do. That's what the mark... | 1,174 |
fomc | 2,001 | Governor Gramlich. | 4 |
fomc | 2,001 | Thank you, Mr. Chairman. Six months ago policy was very restrictive, as evidenced in the Bluebook chart on the real funds rate. Given the sharp drop in spending demands, we knew that the stance of policy had to be changed dramatically and quickly. One could quibble about the details, but basically we made this transiti... | 931 |
fomc | 2,001 | Governor Ferguson. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. Since our last meeting, the incoming data have indicated to me at least that it is still too early to declare that the economy has bottomed. While we knew that the data would be weak, in fact they have been weaker than we expected. The gradual erosion of the national economy appears to be unaba... | 1,030 |
fomc | 2,001 | Governor Kelley. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. The condition of our economy has been thoroughly examined by the other Committee members. There's little I can add to their comments, and in the next segment of the meeting we will decide what all this implies for policy. So let me take a minute of the Committee's time to comment on a concern t... | 861 |
fomc | 2,001 | Governor Meyer. | 3 |
fomc | 2,001 | Thank you, Mr. Chairman. I want to start by identifying three themes that summarize my interpretation of the outlook context for today's policy decision. First, growth appears to be at or below 1 percent for the third consecutive quarter and there are few signs in the incoming data of an imminent rebound. This weakness... | 1,302 |
fomc | 2,001 | Thank you. That completes the Committee discussion and I turn to Don Kohn. | 16 |
fomc | 2,001 | Thank you, Mr. Chairman. I'll be referring to the charts in the "Longer-Term Strategies" section of the Bluebook. In the current circumstances, the question of what the Committee should do today may seem more tightly linked than usual to some of the issues discussed in that section. The Committee has eased substantiall... | 2,616 |
fomc | 2,001 | Questions for Don? | 4 |
fomc | 2,001 | Don, in terms of the press statement that you talked about at the end of your remarks: What do you think the market's reaction would be to a statement that noted the downside risks but also indicated that we might be finished easing, depending on the data that accumulate over the next several weeks? I don't want to put... | 94 |
fomc | 2,001 | I think there would be a considerable reaction for the following reasons. Markets, although they have an eventual upturn in rates built in, also have 50 or more basis points of further ease built in. Assuming you accompany that statement with, say, a 25 basis point cut, they would be taking out that other 25 plus basis... | 210 |
fomc | 2,001 | But don't you think there's a possibility that the message is that if the incoming data were weak, we would evaluate that, especially if we had a balance of risk statement weighted to the downside? Isn't that just as likely--or perhaps more likely, I think--to be the real message? | 58 |
fomc | 2,001 | The balance of risk statement toward weakness would help take away from the reaction I described to a certain extent. You've raised a complicated thought in terms of how the Committee might want to try to nuance its posture to the markets. To make the markets understand that you are changing your posture is going to be... | 146 |
fomc | 2,001 | President Jordan. | 3 |
fomc | 2,001 | I have two questions, Don. But first let me follow up on the exchange between you and Tom Hoenig. At some point we have to back up our confidence in the future with action or lack thereof, not just our words. | 47 |
fomc | 2,001 | Right. | 2 |
fomc | 2,001 | The Bluebook does a remarkable job of putting together a lot of options for us to consider depending on the assumptions we want to make. I know you can't put in 17 alternatives to satisfy all 17 of us, but you are getting close. If I want to be a productivity optimist as in Chart 6, then, of course, I take seriously th... | 181 |
fomc | 2,001 | Well, yes, though it depends on how much you would lower the natural rate. They wouldn't offset entirely. If I may, I'd like to amend my remarks to President Broaddus yesterday, when I said that the tradeoff might be a little more than one-for-one. In checking with the modeling folks this morning, they said it was abou... | 253 |
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