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fomc | 2,002 | And there are no other channels that you see deflation working through to output besides the higher real interest rate? | 22 |
fomc | 2,002 | Not in the way that this model is constructed. The zero bound on nominal interest rates, in essence, is the place where the deflation begins to get its own traction in this model. Obviously, many of the things one might worry about accompanying a deflation are not features that are easily modeled in the context of our ... | 166 |
fomc | 2,002 | Okay, thank you. | 5 |
fomc | 2,002 | President Broaddus. | 5 |
fomc | 2,002 | David, as you've already said, a key factor in your forecast, which I think is a fairly optimistic one, is strong structural productivity growth. Looking at the way you break that down on page 9 in the first part of the Greenbook, the strong growth in multifactor productivity is a big part of that. That has been accele... | 133 |
fomc | 2,002 | As you're well aware, President Broaddus, multifactor productivity is in essence a residual. It measures everything that we don't really understand about productivity. In extrapolating it, we use various procedures involving statistical filters to try to ascertain the underlying trend. And those statistical filters gen... | 307 |
fomc | 2,002 | Thank you. | 3 |
fomc | 2,002 | President Parry. | 4 |
fomc | 2,002 | David, my question is related somewhat to the interchange you had with Michael Moskow about deflation. I had a chance to look at the Board staff's domestic nonfinancial briefing and the exercise of estimating the probability of attaining deflation, as you define it, over a four-quarter period. I was struck by how large... | 156 |
fomc | 2,002 | Well, when we first started calculating those probabilities earlier this fall, I think we were struck as well by how large they were. Again, one could imagine a situation in which we were getting beneficial shocks to wages and prices and faster productivity growth--scenarios where those developments were the principal ... | 219 |
fomc | 2,002 | This may be more like a China version of deflation, where the deflation probably reflects what is happening to productivity. | 24 |
fomc | 2,002 | That's right. Certainly, if we created 5,000 stochastic runs of the model to calculate the probabilities, within the 28 percent of cases with deflation there would be many instances in which the deflation was relatively benign. Those would be instances where the deflation was caused by faster productivity growth or ben... | 83 |
fomc | 2,002 | Right, and for growth. | 6 |
fomc | 2,002 | May I follow up quickly? The stochastic shocks you used are drawn from the whole postwar period? | 20 |
fomc | 2,002 | They are from 1970 on, which includes the high volatility period of the 1970s. | 21 |
fomc | 2,002 | The volatility of these shocks has been much smaller in the last decade or so. | 16 |
fomc | 2,002 | Yes, the volatility is much smaller, and indeed the probabilities are affected by that. That's one of the issues we debated among ourselves in our discussions about how to present the results. We debated whether it was better to show the results using the post 1983 period as opposed to the post-1970 period. We thought ... | 163 |
fomc | 2,002 | What would the numbers be if you used the post-1983 period? | 15 |
fomc | 2,002 | To tell you the truth, I don't recall offhand exactly what the numbers were, but we've done that calculation, and we can certainly circulate them to the Committee. | 33 |
fomc | 2,002 | That would be interesting. | 5 |
fomc | 2,002 | I'd be happy to do that. | 7 |
fomc | 2,002 | President Minehan. | 4 |
fomc | 2,002 | To turn to the upside risks to the forecast, I certainly agree that they reside mainly in what the Congress might do with regard to fiscal stimulus. But I would note that the Greenbook forecast all the way through 2004 is considerably more optimistic than most private-sector forecasts on the state and local side--and b... | 165 |
fomc | 2,002 | Indeed, we do see obvious risks associated with that piece of the forecast. But our general outlook is that we will begin to see some overall acceleration of activity and incomes, so we're going to get help for the state and local sector from a couple of different directions. One is improving tax bases over the next ye... | 210 |
fomc | 2,002 | Yes. | 2 |
fomc | 2,002 | And, as you know, a number of the policy proposals that have been talked about use the federal government to provide some fiscal relief for state and local governments. The Administration has not signed on to that idea at all yet. | 45 |
fomc | 2,002 | But the politics of that might not be all that attractive. | 12 |
fomc | 2,002 | Yes, but there is certainly some pressure in that direction. | 12 |
fomc | 2,002 | I have a couple of additional comments. First, it is incredibly difficult to interpret some of the announcements that are coming out in the state and local area. For example, Governor Davis as you know--excuse me, I'm not quite as emotional about the topic as my faltering voice suggests. [Laughter] | 63 |
fomc | 2,002 | I am! | 3 |
fomc | 2,002 | Over the weekend or late last week, Governor Davis announced a package of $10 billion of budget cuts. My understanding, based on public sources, is that only about $31/2 billion of those cuts are to be applied in the current fiscal year; the remaining $6 billion and change will be applied in the following year. That go... | 148 |
fomc | 2,002 | Right, and securitizing tobacco settlements. | 9 |
fomc | 2,002 | There's a whole constellation of financial devices available including, as Dave mentioned, the state financing of capital projects through bond issuance rather than on a current basis. | 30 |
fomc | 2,002 | I agree with all that. I just was struck that the Greenbook estimate of growth in the state and local sector even in 2004 is at least double that of DRI. And other forecasts are below DRI's forecast. I know reasonable people can differ on this, but that seemed like a big difference. | 64 |
fomc | 2,002 | Just to remind you, we have a higher estimate of potential output, too, than most other forecasts. | 21 |
fomc | 2,002 | Yes, that's true. | 5 |
fomc | 2,002 | That does not explain all of the difference, but it does account for at least a few tenths of it. | 23 |
fomc | 2,002 | President Parry. | 4 |
fomc | 2,002 | David, I agree with the points you made about the timing of those spending cuts in California. But that's because the budget deficit is about $6 billion in the current fiscal year and an estimated $21 billion in the subsequent year. So these announced cuts are only part of the program. | 57 |
fomc | 2,002 | Yes, Governor Davis indicated that there are further announcements to come. | 13 |
fomc | 2,002 | If they're going to get to a balanced budget. | 10 |
fomc | 2,002 | Are they going to use real estimates, or is some of that trust fund shuffling and the usual accounting procedures they sometimes use to fill the deficit gap? Do you have any idea what they'll use? | 40 |
fomc | 2,002 | I think they're meeting this week to figure out how they're going to do the rest of it because what has been proposed so far--the numbers that David mentioned--are mainly cuts in spending, half of which are in education because that's half the budget. I'm sure there are short-term actions they can take, but those actio... | 76 |
fomc | 2,002 | Just on that point, could I ask Bob a question? I read somewhere last night that, even if California laid off all its public employees, that would cut the deficit only by two-thirds. Can that be right. Have you seen that number? | 50 |
fomc | 2,002 | Yes, I did see it. It struck me as a very surprising number. I can't remember who made that comment. | 24 |
fomc | 2,002 | It could be related to the pension funds in the sense that the state could fire everybody but the prior pension obligations would still be there on the outlay side. | 32 |
fomc | 2,002 | I don't know, but I'll take a look at that. | 12 |
fomc | 2,002 | Let's move on to the Committee discussion. You have priority, President Jordan. | 15 |
fomc | 2,002 | Thank you again. Looking at the information that has become available in the few weeks since our last meeting, if one filters out the likely effects of the severe winter weather in parts of the country, the equity market gyrations, the waxing and waning of concerns over terrorist attacks and a possible war with Iraq, a... | 620 |
fomc | 2,002 | President Guynn. | 4 |
fomc | 2,002 | Thank you, Mr. Chairman. Economic conditions in the Sixth District are largely unchanged over the short period since our last meeting. And few new clues have emerged that might shed light on the likely path of the national economy. While housing is still holding its own in most of our major markets, nonresidential real... | 931 |
fomc | 2,002 | President Santomero. | 5 |
fomc | 2,002 | Thank you, Mr. Chairman. In the short time since our last meeting we've seen a slight improvement in a few indicators of economic activity in the Third District. But overall growth in our region remains languid. Last time I reported on some deterioration in regional manufacturing activity. Over the past month we've see... | 884 |
fomc | 2,002 | President Minehan. | 4 |
fomc | 2,002 | Thank you, Mr. Chairman. "Bumping along" may be about the best way to characterize economic activity in New England. Unemployment rose in October, and the region lost jobs. But most of the employment weakness seems to be centered in Massachusetts, where the pace of job losses over the last year has been more than doubl... | 882 |
fomc | 2,002 | President Broaddus. | 5 |
fomc | 2,002 | You may remember that last month I reported that the economy in our region had softened in October, and I attributed that at least in part to the sniper shootings in the D.C. area that were keeping people at home. Activity does appear to have firmed up a bit in November according to some of the preliminary numbers we h... | 1,003 |
fomc | 2,002 | President Moskow. | 4 |
fomc | 2,002 | Thank you, Mr. Chairman. Economic activity in the Seventh District generally appears to have remained soft in November and early December. Our retailing contacts were pleased with Thanksgiving weekend sales, but those sales didn't make up for an otherwise soft November. And retailers remain cautious about the rest of t... | 918 |
fomc | 2,002 | President Parry. | 4 |
fomc | 2,002 | Mr. Chairman, the economic recovery in the West has proceeded sluggishly in recent weeks, although some tentative signs point to a pickup in momentum going forward. Many District customers remained on the sidelines in October and much of November. However, early tallies of holiday retail sales indicate that consumers i... | 795 |
fomc | 2,002 | President Stern. | 3 |
fomc | 2,002 | Thank you, Mr. Chairman. I would describe District economic conditions as mixed. Somewhat surprisingly, at least to me, manufacturing does appear to be improving modestly and the improvement seems rather broadly based. We see it in the production of basic materials, in some industrial equipment, and in some higher-tech... | 523 |
fomc | 2,002 | President McTeer. | 5 |
fomc | 2,002 | Mr. Chairman, I'm going to miss Jerry Jordan's anecdotes and vignettes, but I might note that in this case I think he's behind the curve. We've already done the research and found that forklifts are indeed a leading indicator, but backhoes are a lagging indicator. [Laughter] | 61 |
fomc | 2,002 | It's still a very uplifting thing. [Laughter] | 11 |
fomc | 2,002 | The economy in the Eleventh District remains weak. It's hard to tell whether we're treading water or continuing to sink. Our Beige Book contacts, though, have become more optimistic about the outlook for next year than they had been. As in the rest of the country, manufacturing continues to be the hardest hit sector in... | 861 |
fomc | 2,002 | Governor Kohn. | 4 |
fomc | 2,002 | Thank you. When I supported the assessment of balanced risks at the last FOMC meeting, I recognized that I was balancing near-term economic weakness with the enhanced prospects for robust growth over the longer term after our 50 basis point easing. It was a close call, as many noted. Although developments since the las... | 1,083 |
fomc | 2,002 | President Hoenig. | 4 |
fomc | 2,002 | Mr. Chairman, the Tenth District economy has shown some signs of improvement since our last meeting, but I would say that the improvement is still very, very modest, and I wouldn't wish to overemphasize it. Manufacturing activity has firmed somewhat over the last couple of months, and optimism in our surveys of manufac... | 607 |
fomc | 2,002 | Governor Gramlich. | 4 |
fomc | 2,002 | Thank you, Mr. Chairman. At our last meeting, short-term interest rates were arguably too high and the outlook for aggregate demand too weak. There was a lot to talk about. By this meeting, there has been some adjustment on both sides. Both the Fed and the ECB have lowered short-term rates by 50 basis points since our ... | 741 |
fomc | 2,002 | Why don't we break for coffee? But before we do that, let me just mention that the reason I left the room was that I got a call from Bill Donaldson, whom many of you know. He said he is about to be nominated by the President for the chairmanship of the Securities and Exchange Commission. So I gave him my condolences! [... | 78 |
fomc | 2,002 | Vice Chair. | 3 |
fomc | 2,002 | Thank you, Mr. Chairman. The Second District economy appears to have picked up some steam since my last report, with signs of improvement in the labor market and stabilization in manufacturing. Retailers are reporting some improvement in sales in November, particularly over the Thanksgiving weekend, with the winter wea... | 631 |
fomc | 2,002 | The President-elect was here in Washington today, wasn't he? | 12 |
fomc | 2,002 | Yes. | 2 |
fomc | 2,002 | Governor Olson. | 3 |
fomc | 2,002 | I want to mention a couple of points that I've picked up in discussions with bankers, which tend to reinforce what we've heard around the table today. Basically the sense of bankers on the commercial lending side is that the psychology seems to have changed slightly but lending activity has not yet followed. Of the fou... | 486 |
fomc | 2,002 | President Poole. | 4 |
fomc | 2,002 | Thank you, Mr. Chairman. When I came in this morning, I thought one of our problems today might be that many of us would be leaving the building early and the press would see us and wonder what we were doing this morning. But we seem to have solved that problem! [Laughter] My Wal-Mart contact--and obviously that compan... | 245 |
fomc | 2,002 | Is that an oxymoron? | 7 |
fomc | 2,002 | Well, at least Wal-Mart's version of fashion apparel. How long has it been since you've been in a Wal-Mart? At any rate, those items are continuing to sell fairly well. So, there are these crosscurrents. At any rate, my contact was concerned about whether households are getting somewhat stressed, and the pattern of foo... | 708 |
fomc | 2,002 | Governor Ferguson. | 3 |
fomc | 2,002 | Thank you, Mr. Chairman. Following on Bill Poole's introductory comments, I want to share with you a comment that Ed Boehne made to me when he was on this Committee. He said that, when we have meetings such as this, the less there is to discuss the more there is to say. [Laughter] So I think I'll just say my piece. To ... | 1,051 |
fomc | 2,002 | Governor Bies. | 4 |
fomc | 2,002 | I'm going to borrow a term that President Minehan used earlier. I, too, had in the introductory sentence of my notes that I think we're in a "bumpy" period right now. The news since our last meeting has been mixed. As many of you have indicated, we have seen evidence of the good news and the bad news scenario. Producti... | 746 |
fomc | 2,002 | Governor Bernanke. | 4 |
fomc | 2,002 | I guess I'm batting cleanup again. At this point there's not a great deal to add, but I'd like to reinforce some of the comments made by President Poole, Governor Ferguson, and Governor Bies about the upside potential for the recovery. Although the news has not been entirely positive since our last meeting, I think the... | 835 |
fomc | 2,002 | Thank you very much. Let's move on to Vincent Reinhart. | 13 |
fomc | 2,002 | Actually, Brian Madigan will give the monetary policy briefing. | 12 |
fomc | 2,002 | Go ahead, Brian. | 5 |
fomc | 2,002 | 2 Thank you, Mr. Chairman. I'll be referring to the table and chart labeled "Material for Monetary Policy Briefing." As background for your policy decision today, I thought it might be useful to review in a bit more detail how market participants reacted to your decisions at the November meeting. On the eve of that mee... | 1,134 |
fomc | 2,002 | Questions for Brian? | 4 |
fomc | 2,002 | Brian, I'd like to ask you a question about the path for monetary policy in chart 4 in the Bluebook, which is right before page 9. The chart in question is at the upper left. The Greenbook path for the funds rate is above the perfect foresight alternative for about a year and then falls below it. I have two questions a... | 134 |
fomc | 2,002 | Your first question relates to why the baseline assumption for monetary policy was chosen. I'll pass to Dave Stockton for that. | 23 |
fomc | 2,002 | Well, in writing down the policy assumption for the purpose of the Greenbook forecast, I'm not sure I would choose a path that would be considered optimal, so to speak. If you gave me your objective function, including your objectives for both inflation and the outlook gap and your sensitivity response, I'd be happy to... | 154 |
fomc | 2,002 | But there is an implied view about policy. | 9 |
fomc | 2,002 | That certainly does not leave us off the hook; we have to put down something as a policy assumption. So what do we do? Where I think the Greenbook baseline path for the funds rate delivers a policy forecast is that our baseline forecast puts the economy on a path to getting the unemployment rate back to the natural rat... | 153 |
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