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fomc
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If something is done in Iraq?
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No.
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I just worry that that is how it's going to be interpreted. My own sense is that there are a lot broader reasons, even beyond geopolitical risks--and you covered some of them before--for the considerable uncertainty that exists. I think highlighting it this way almost puts a spin on it that says, in effect, if somethin...
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Is it interpreted that way?
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I certainly don't interpret it that way.
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No. As a matter of fact, I think it's a subset of the broader statement in the first half of the sentence. I don't think of it that way at all.
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All right. I knew I'd be in the minority, but I'm worried about it.
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That's all right. If in fact you are correct, then the statement is wrong. But it says "considerable uncertainty persists . . . owing in part to the emergence . . .." It's the uncertainty that is the critical issue, not the geopolitical risks.
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I know you can read the sentence that way, but I guess I'd feel better if the "in part" clause had something beyond geopolitical risks or if that were just left out and the sentence stopped with the word "employment."
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I think conditions have changed enough that not to acknowledge the geopolitical events in one form or another strikes me as misrepresenting the situation. Let me just ask a more general question. When I accepted three speeches tomorrow in London, only one of them had a question and answer period afterwards and I had in...
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My view is that it's not just not half bad, it's essential that you do that. I think we need to prepare the market for the possibility, not the certainty, that we may make a move.
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I don't think you should ever be restricted from talking about monetary policy after a meeting for some artificial time period that we've predetermined. I think your commenting as you suggest would be good.
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Does anybody else have anything to add? Bill.
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I would just comment that there is always a risk that something you say will lead people to read between the lines and will raise more questions than you're able to dispose of. That's obviously a risk. I would also say that the two dissents will prepare the market for the possibility of future action, probably in a way...
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I agree with that.
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Mr. Chairman, I think you should be prepared and willing to take questions. I think it serves a useful purpose of providing information. Obviously someone could take what you say the wrong way, but that's going to happen regardless. I think you'll do more good than harm.
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Does anybody else have any recommendations?
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I agree with Tom Hoenig.
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I agree with him, too; more communication is better than less.
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My sense is that the less said in this press statement the fewer questions we'll have, but you can clarify any questions in a dialogue type of environment in a way that we can't do in a statement.
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Okay, I'll try my best. I can't guarantee that what I say will always come out the way I want it to. But I've been around long enough that I can put more words into fewer ideas than anyone else I know! [Laughter]
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We all agree that you have a unique talent in that regard.
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Thanks a lot!
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But, Mr. Chairman, you'll be speaking in a foreign language there!
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Is there anything else on the agenda that we need to discuss?
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Lunch!
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The next meeting is Wednesday, November 6, the day after Election Day. If it were the day before, we'd have a problem.
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Welcome. Would somebody like to move approval of the minutes for the meeting of September 24?
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So move, Mr. Chairman.
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Without objection, they are approved. Dino Kos, you have the floor.
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1 Thank you, Mr. Chairman. I'll be referring to the charts that were distributed a short while ago. The top panel of the first page shows the three-month U.S. dollar libor fixing in black and the three-month deposit rates three, six, and nine months forward in red. Forward rates had a minor roller coaster ride, first d...
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Questions for Dino?
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I don't have a question. I have a comment. I think your handling of the account when you had the reduction in holdings was very well done.
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The person responsible [Ms. Perelmuter] is to my left.
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You mean you're deflecting the bow? [Laughter] President Broaddus.
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I guess I'm a little surprised, though not a lot, by the strength of the expectation that we're going to move the funds rate down today. Looking at your first chart, I just want to make sure I understand how that evolved. It appears that expectations began to change sometime around October 20 and that the John Berry ar...
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Yes, I think you can see that views had already been moving toward an expectation of an easing move. But there's always the issue of how much conviction lies behind that expectation and the degree of dispersion around it. To some extent what Berry's article did was not necessarily to lock in that expectation but to rai...
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He sort of iced it, I guess.
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I ought to point out that those of us here in Washington were quite surprised at the Berry article. We don't know where it came from. Berry is very careful, and he usually wouldn't write the way he wrote if he didn't have some conviction about the validity of his information. So my impression is that he had a better so...
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Move approval of the domestic operations.
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Thank you very much. Without objection, they are approved. We now move on to David Stockton and Karen Johnson.
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Thank you, Mr. Chairman. As you know, we received a considerable amount of information last week after the Greenbook projection was finalized. I am pleased to report that the forecast gods, however briefly, appeared to be smiling upon us. For the most part, the data were very close to our expectations and require littl...
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The contour of the staff forecast for the rest of the world mirrors that for the U.S. outlook--a downward revision in the near term relative to last Greenbook, followed by some acceleration in 2003 and 2004. We are expecting the swing in growth abroad on average to be somewhat damped relative to the U.S. pattern. We se...
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Questions for our colleagues?
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Mr. Chairman, I have a question for Dave. You described your numbers on equipment spending as--maybe this isn't the term to use--shots in the dark to some extent. At least that's how I interpreted it, though that's probably playing fast and loose with what you really said. But what I've been struck by in the Greenbook ...
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I'd say a few things about that. First of all, there is some question about the data themselves. Our industrial production measures of the output in that area don't suggest as much strength as is included in the M3 data [manufacturers' orders, shipments, and inventories] that are used to construct the national income a...
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But when you ask a question about that, everybody in business says that the equipment is just fine and we're making it do more than we ever made it do before.
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Right. Still, it is true that a lot of units are being shipped. Despite the fact that one hears those stories, there is actual evidence of sales. Numbers of boxes are leaving factories, and somebody is purchasing those items.
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Incidentally, the story about the lengthening out of the time firms are employing these pieces of equipment is important only if the rate of change remains stable. Those stories can very readily be consistent with a dramatic decline in how quickly the lengthening stops. And that will engender, as Dave says, a pop in th...
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Yes.
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The business community seems to be a little sloppy in the way they evaluate their investment spending. And I think there are serious questions as to what Census does with those M3 forms. Remember where the M3 forms originate. They are filled out by plant managers at the plant level on the shipments literally going out ...
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I'd just mention one other thing. Obviously, it's an area of very substantial price declines, too. So capital spending budgets in nominal terms, which is what we mostly hear about, are weaker than what we would translate into real terms. None of this, I think, completely resolves the tension that you are pointing out h...
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Right.
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President Parry.
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Dave, in the near-term outlook in the Greenbook, especially through the middle of next year, inventories are very lean. As a matter of fact, I think the inventory-sales ratios reach historically low levels. Have you given any thought to how large and how likely the upside risk to the forecast might be if inventories we...
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You're absolutely right that our forecast, in essence, is predicated on an ongoing decline in the target inventory-sales ratio. We would expect that ratio in some sense to continue to get lower and lower over time as businesses manage inventories better. And quite frankly, our inventory projection actually has inventor...
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Thank you.
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President McTeer.
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David, over the past year of presumed recovery, employment as measured by the establishment survey is down slightly, I believe. There's been negative employment growth over that year. Yet the household survey has employment up about a million, at least enough to hold the unemployment rate fairly constant. This seems li...
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Yes. Actually, there are quite frequently very large discrepancies between the two series. As we talked about at the Board meeting on Monday, it's quite rare to see them line up very well over any considerable period of time. So we're always trying to explain why one is stronger than the other, usually not too successf...
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In recent months, housing starts have come in above expectations fairly persistently. Is there a possibility that we are underestimating the degree of immigration as we did in the previous decade? In other words, the boom of 1995 through 2000, which put the expansion of the U.S. economy well above that of other nations...
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That certainly is possible. I actually don't know whether or not our experts would think that we've been missing something recently on immigration. As for the surprising strength in housing activity over the past few months, I would just note that household formations are extremely elastic with respect to overall econo...
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Could I comment on this issue? The immigration experts are virtually all in agreement that if a country has a toughening up of legal immigration, which we've had since September 11, illegal immigration just increases accordingly. So the likelihood, therefore, of immigration being stronger and creating more housing dema...
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Governor Gramlich.
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Could I ask Dave a question? Suppose it's true that there is extra immigration? Wouldn't that tend to show up in the employer survey and not the household survey?
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It could, if it were actually measured.
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It could, but it won't show up.
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It won't show up in the household survey, we know that. But whether it shows up in the employer survey is not clear to me.
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It depends on whether they affected that survey to a substantial extent.
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So it's hard to see how it would resolve Bob's question.
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I wasn't raising the issue in terms of Bob's question. I was raising a second question relative to the demand for housing in a very broad sense. Incidentally, with the very latest revisions in the third quarter, what is the nonfarm productivity number now?
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We'd now be looking at a third-quarter figure of about 4 percent.
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Four point zero percent?
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Yes.
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President Poole.
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My question arose before the housing discussion started, but let me just comment briefly on housing. Part of what may be going on in that sector is the "tear down" phenomenon. A lot of housing starts come from tearing down perfectly good houses in neighborhoods like my own and replacing them with McMansions. I think we...
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Yes. We do get demolitions data on a very delayed basis. And it is true that, if we took the change in the stock of housing, which unfortunately is tied to the population survey--it's the so-called vacancy rate survey--and we used the gross additions, which include mobile homes obviously, we would in the past have gott...
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In the pre-FOMC briefing, at the end of the charts and tables, chart 3 listed four items that are affecting the longer-run outlook. The fourth one is that "the gloom that currently is a restraining influence on business expansion will gradually lift next year." I have the sense that we are relying more on that than we ...
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Let me just say a couple of words about that. One is that some of the things you mentioned in terms of factors that are likely to be weighing on investment are incorporated in this forecast. You may have seen on chart 4 in that presentation that we indicated we're expecting aircraft investment--for exactly the reasons ...
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President Hoenig.
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This follows up on Bill's comment from a little different direction. In light of the animal spirits discussion, the alternative scenario in the Greenbook labeled "lower funds rate" seems to produce a fairly optimistic outcome. I don't know if you adjusted your model or just allowed it to run in that instance to get the...
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That particular scenario makes no different assumption about the way animal spirits evolve than does the baseline forecast. So, the strengthening in that simulation--from the 50 basis point reduction in the funds rate relative to the baseline--operates through all the usual channels by which we assume monetary policy w...
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Or not operating as strongly through them.
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--or not as strongly through those channels, you would want to temper the results there. Now, I don't believe there's necessarily any strong reason for thinking that the interest sensitivity of spending at this point would be very different than what is picked up in the historical averages. While we talk about capital ...
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President Moskow.
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I have a question for David about table A in the extension of the Greenbook forecast. On prices, you have the core PCE declining through 2007 and then ticking up only slightly after that. It's really an extraordinary performance--if we were concerned about inflation at any point over that period. I was wondering if you...
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Well, to me one of the simplest ways to think about this is in terms of the probability of deflation, which I mentioned in my briefing--meaning that we get inflation roughly 3/4 percentage point below our current forecast. As I said, the model suggests that those odds are somewhere in the 25 to 30 percent range. I thin...
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Thank you.
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Further questions? Who would like to start off our roundtable? President Parry.
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Mr. Chairman, Twelfth District economic activity has expanded further recently, but the pace of growth is sluggish, and the District appears to be pulling down growth in the national economy. After showing solid gains in the previous month, consumer spending fell in September as households cut outlays on automobiles an...
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That agreement has not been ratified yet, has it?
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No, it has not. But both sides made concessions to reach an agreement on technology, and that has been the major stumbling block. There are other issues, but that's the major one. Although talks still could break down over pensions and arbitration, clearing the technology hurdle substantially eased tensions between the...
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President Moskow.
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Thank you, Mr. Chairman. On balance, economic activity in the Seventh District appears to have softened further in September and October. Although our housing sector remains vibrant, consumer spending has weakened. With a few exceptions, such as the entertainment and recreational vehicle sectors, retail sales were repo...
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President Minehan.
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Thank you, Mr. Chairman. As far as we can see, the recovery is on hold in New England. Employment declined in August and September, and the region's unemployment rate has moved up. Both consumer and business confidence are off; reports from retailers are mixed; and office vacancies in the Boston area continue to rise, ...
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President Broaddus.
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Thank you, Mr. Chairman. The information we have suggests that our District economy, like other regional economies around the country, softened in October from an already quite moderate pace over the summer months. Some of this weakness in our region reflected unusual special circumstances. We do a monthly survey of Di...
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President Jordan.
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Thank you, Mr. Chairman. Our recent Business Advisory Council meeting wasn't nearly as downbeat as Cathy Minehan's, and maybe it's because at least one member who didn't show up was from a company in bankruptcy! [Laughter] The general sentiment of the group was summed up by one of the participants who said that the eco...
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