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fomc | 2,003 | Vice Chair. | 3 |
fomc | 2,003 | Dave, you mentioned that there was a very considerable spread between the OMB and the CBO forecasts of defense expenditures in the second and third quarters. The big variable in defense expenditures clearly has to be the speed with which the armaments that were used in Iraq are restored. By this time the Defense Depart... | 145 |
fomc | 2,003 | Actually, the CBO number is above ours, and OMB is below. | 16 |
fomc | 2,003 | Ah, I had it backwards. How much weaker would your forecast be if OMB is correct? | 20 |
fomc | 2,003 | I'll let Mr. Wilcox, who has Treasury experience, address that question. I would just point out that, when we first started talking with OMB on this, they were in the CBO camp and were well above us. They have just in the last week or so shifted toward this lower number. | 62 |
fomc | 2,003 | But that would add to my view that they called the Defense Department and got the facts. | 18 |
fomc | 2,003 | That's quite possible. | 4 |
fomc | 2,003 | Actually, they started out north of CBO on the advice of the Defense Department. I'm not sure what they factored into their thinking that led them to bring their number down to below where the Defense Department said it was going to be. It may be because their figure is $5 billion or so weaker than ours for the fiscal ... | 87 |
fomc | 2,003 | And that is roughly 1/2 percentage point on GDP growth. | 14 |
fomc | 2,003 | Thank you. | 3 |
fomc | 2,003 | I think it's fair to say that there is a lot of uncertainty about the likely spendout pattern. We think we've begun to see some entrails of that spending in the daily Treasury statements for April. But getting from the daily Treasury statements to the monthly Treasury statements, which form the basis for BEA's estimate... | 90 |
fomc | 2,003 | Getting from the monthly Treasury statement to the actual deliveries, which is how defense spending is measured in the GDP, is an even greater hurdle. | 28 |
fomc | 2,003 | Yes. | 2 |
fomc | 2,003 | There they are guessing. BEA does not have partial payments or advance payments data until quite a bit later. President Minehan. | 26 |
fomc | 2,003 | Dave, you referred to narrowing credit spreads, and President Moskow did as well, as a positive aspect of financial markets. I'm wondering a little about that. People tell me that some of the reduction in credit spreads is due to the fact that there's a lot of money out there chasing very few good deals. If one looks a... | 127 |
fomc | 2,003 | Well, that's always a possibility. It's our view, however, that the basic health of the corporate balance sheet has improved and has improved quite noticeably over the last year or so. We've seen a decline in default rates. We've certainly seen a significant drop-off in the interest share of cash flow, aided by a low i... | 260 |
fomc | 2,003 | Could I just follow up on that issue? Unlike in the recession of the early '90s, this time corporate bonds and equities took most of the hit in terms of losses as opposed to bank loans. So it isn't just the corporate governance scandals or the lack of confidence in financial reporting that are involved but the fact tha... | 138 |
fomc | 2,003 | Absolutely. There certainly has been a very significant strain that was related to the fact that firms had invested in so many projects. | 25 |
fomc | 2,003 | Which is a problem that seems to be behind us now. | 12 |
fomc | 2,003 | Right. | 2 |
fomc | 2,003 | Further questions for our colleagues? President Poole. | 10 |
fomc | 2,003 | I have two quite different questions. In the Greenbook there was a discussion of the different picture of the labor market provided by the payroll employment data and by the unemployment rate. The Greenbook explanation of this focused on the participation rate. But it looks to me as though the divergence in the payroll... | 146 |
fomc | 2,003 | The short answer is "not much" because these gaps, as you know, widen out and come back in. You're right that recently there has been a remarkably large gap between the payroll and the household survey data. Our reason for emphasizing participation in our analysis of the gaps that have developed between the payroll and... | 238 |
fomc | 2,003 | I guess the implication of what I'm saying is that the behavior of the unemployment rate would not look quite so peculiar if you focused on household employment rather than payroll employment because such a big gap has opened up there. | 42 |
fomc | 2,003 | The household survey is the one upon which the unemployment rate is based. | 14 |
fomc | 2,003 | Right. | 2 |
fomc | 2,003 | I think it would be a mistake to focus on household employment as suggesting that there is greater health in the overall labor markets and the employment situation. Every survey taken of both households and businesses about the availability of jobs or the availability of workers lines up very well with the weakness tha... | 79 |
fomc | 2,003 | Well, the strength in the household series is not huge. It's just that there has been a substantial gap between the two series. | 26 |
fomc | 2,003 | Yes. | 2 |
fomc | 2,003 | My other question is-- | 5 |
fomc | 2,003 | May I just interrupt? We had a population census adjustment, which was supposed to smooth out the household series. But my recollection is that, in the actual published data for household employment, the number takes off very sharply at the time when the adjustment was made. I've been meaning to ask, and I'm asking now... | 77 |
fomc | 2,003 | Well, there is a discontinuity. But I don't know whether or not it's an important factor in explaining this recent jump. I don't know if Larry has any insight. | 34 |
fomc | 2,003 | I don't think so. We'll look into that issue. | 11 |
fomc | 2,003 | I ask because you gave me a chart that shows hours worked on a household basis and on a payroll basis. They parallel each other until very late last year, and then all of a sudden the household hours, which are in a sense a measure of employment, jumped up sharply. That struck me as just not credible economically. | 65 |
fomc | 2,003 | I don't have a good answer for you. We'll have to look into it. | 16 |
fomc | 2,003 | Thank you. | 3 |
fomc | 2,003 | My other question is really quite different. The forecast depends not insignificantly on the analysis related to the macroeconomics of fiscal policy. Of course, there's a very old debate about that. On the tax side particularly, one view obviously is that tax cuts don't do much of anything for short-run activity. Can y... | 148 |
fomc | 2,003 | The fiscal package that we've incorporated on the tax side is one that has all the elements of the President's program with the exception of the dividend tax relief. That would be consistent roughly with the $350 billion package in aggregate size being discussed by the Senate, not the $550 billion package being discuss... | 63 |
fomc | 2,003 | That's a total over ten years? | 7 |
fomc | 2,003 | That's over ten years. But we have incorporated in our forecast the passage of that bill, and we have its effects on disposable income starting in October of this year. So it gives a fairly good pop to disposable income starting in the fourth quarter and into early next year. It is an important factor. From the politic... | 330 |
fomc | 2,003 | On the other hand, it would affect interest rates, so you wouldn't have that effect. | 18 |
fomc | 2,003 | There would be some offset through lower long-term interest rates if the package did not pass. And we'd get a little crowding in on the investment side. That feature, by the way, is incorporated in the model simulations that do have a forward-looking element to them. | 54 |
fomc | 2,003 | I think it's also muted because many of the elements that are contemplated in the $350 billion package are merely accelerations and so by their nature are essentially temporary measures. Accordingly, they don't cause bond markets to anticipate a substantial worsening of the long-term deficit picture. | 52 |
fomc | 2,003 | By the same token, in the consumption area there are transitory effects as well. | 17 |
fomc | 2,003 | Right. | 2 |
fomc | 2,003 | Further questions? If not, who would like to start our roundtable? President Moskow. | 19 |
fomc | 2,003 | Thank you, Mr. Chairman. Economic activity in the Seventh District remains sluggish. Although the overall business view is negative, I'm hearing marginally better reports than I did in March. At least part of this change in tone reflects the fact that many of our contacts were expecting greater war-related destruction ... | 954 |
fomc | 2,003 | President Parry. | 4 |
fomc | 2,003 | Mr. Chairman, the Twelfth District expansion continues to be sluggish but seems only mildly affected by the Iraqi war and the SARS epidemic in East Asia. The main impact of both events was a sharp reduction in international travel, especially from East Asia. As a result, airlines suspended some regularly scheduled East... | 799 |
fomc | 2,003 | President Santomero. | 5 |
fomc | 2,003 | Thank you, Mr. Chairman. The news on economic activity in the Third District has changed little since our mid-April conference call. The data suggest that our region experienced a somewhat larger slowdown in growth in the first quarter than the nation did. But since the end of hostilities in Iraq, I've sensed an improv... | 1,172 |
fomc | 2,003 | President Guynn. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. Economic activity in our Southeast region also remained sluggish over the intermeeting period. Both retail and auto sales have been weak, while manufacturing has been soft except for defense-related production. Excess capacity still exists in the commercial real estate sector, and state governm... | 1,340 |
fomc | 2,003 | President Stern. | 3 |
fomc | 2,003 | Thank you, Mr. Chairman. As far as the District economy is concerned, we have the usual mixed bag of readings on activity. But overall I would say that the recent tenor of the incoming information has been perhaps a bit better. What I'm going to discuss is based a little on data but comes mostly from anecdotes heard at... | 809 |
fomc | 2,003 | President Poole. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I want to concentrate my comments on anecdotal information that is very, very recent because the formal data we have now are almost entirely from the period when the war was still in progress. My contacts suggest that there is a more optimistic tone, but I'm wondering whether that optimistic to... | 579 |
fomc | 2,003 | President McTeer. | 5 |
fomc | 2,003 | Let me begin by summarizing my broad view. The Eleventh District is showing some signs of stabilizing with modest job growth recently, which is better than the continued job losses at the national level. The real economy continues to soften at the national level, but consumer sentiment has improved. Spreads have narrow... | 951 |
fomc | 2,003 | President Hoenig. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. The Tenth District economy actually has shown signs of some further modest weakening since the last meeting due partly, and only partly, to the war. Both retail sales and manufacturing activity have edged down, and tourism has been soft. Some of the reduction in tourism was very clearly related... | 843 |
fomc | 2,003 | President Minehan. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. There's little in the recent data regarding economic activity in New England that suggests much in the way of forward momentum. Recent employment data, especially the benchmark revisions in the early spring, indicate much steeper employment losses than previously thought. These losses were more... | 1,499 |
fomc | 2,003 | President Pianalto. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. My comments about economic conditions in the Fourth District are not too different from those that my colleagues have already reported about their Districts. Moreover, conditions in our region haven't changed very much since my last several reports. The Fourth District's economy is poised to ex... | 767 |
fomc | 2,003 | President Broaddus. | 5 |
fomc | 2,003 | Thank you, Mr. Chairman. I've been trying to think of a term that best describes our District's economy and the best I can come up with is "treading water." I don't have a sense that the economy is sinking, but I don't see much forward momentum either. Our latest monthly surveys on activity in the manufacturing, retail... | 965 |
fomc | 2,003 | Let's break for coffee and come back in ten or fifteen minutes. | 13 |
fomc | 2,003 | Are we all here? Governor Kohn. | 9 |
fomc | 2,003 | Thank you, Mr. Chairman. I think the answer to President Minehan's questioners--who I suspect are really her alter egos or perhaps she's been speaking into the mirror in the mornings--as to what will lead to higher growth ahead is that some of the factors restraining growth over the last few quarters should be abating.... | 1,305 |
fomc | 2,003 | Vice Chair. | 3 |
fomc | 2,003 | Thank you, Mr. Chairman. The Second District economy has shown scattered signs of improvement since my last report. But generally most sectors can still be characterized as weak. Employment and labor force indicators have been mixed with little change overall, as labor markets have remained slack. Manufacturers note so... | 781 |
fomc | 2,003 | Governor Ferguson. | 3 |
fomc | 2,003 | Thank you, Mr. Chairman. In preparation for any FOMC meeting it obviously seems appropriate to make some judgments about three different forecasting issues. The first is whether the baseline forecast is both reasonable and acceptable. The second is how the forecast has evolved over a period of time, either between meet... | 1,478 |
fomc | 2,003 | Governor Olson. | 3 |
fomc | 2,003 | Let me add two points to the discussion. The first is on fiscal policy. This is going to be a very key week with respect to fiscal policy because the tax writing committees of both the House and the Senate meet this week. It seems to many that the momentum has shifted to the House, in part because the House committee c... | 528 |
fomc | 2,003 | Governor Bernanke. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. Relative to previous meetings, there has been considerably more discussion of inflation and disinflation at this meeting. I'm gratified about that because I think these considerations should be central to our policy analysis at this point. Let me just add a few points to the discussion. Disenta... | 850 |
fomc | 2,003 | Governor Bies. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. In preparing for this meeting I started out looking at previous forecasts, as President Minehan and Governor Ferguson did. I noted that we've had, for the past three years now, a forecast that the economy will get better in the second half of the year. We missed it the first time in 2001 becaus... | 129 |
fomc | 2,003 | In which direction? [Laughter] | 8 |
fomc | 2,003 | The brilliant new chairman! | 5 |
fomc | 2,003 | Yes, the brilliant new chairman! I am concerned, though, that we're starting out this year in a soft spot, unlike the last two years when we had stronger growth in the first half of the year. Hours worked are continuing to decline in this soft period, employment is falling, and production in the manufacturing sector in... | 657 |
fomc | 2,003 | Governor Gramlich. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I didn't deliberately set out to be the last speaker today. I was just a little slow getting on Norm's list. One might liken the economy today to early spring in Michigan. One can see some scilla here, some spring beauties there, and trillium over there. Ah, one says, "Spring is coming!" True, ... | 887 |
fomc | 2,003 | Thank you very much. We've completed our roundtable, and we'll turn to Vincent Reinhart. | 19 |
fomc | 2,003 | 2 Thank you, Mr. Chairman. I'll be referring to the materials that Carol is handing out now. The marked shifts over the intermeeting period in market participants' expectations about monetary policy are evident in the top panel of your first exhibit, which plots the evolving probability that the funds rate would be 1/4... | 2,112 |
fomc | 2,003 | Questions for Vincent? | 4 |
fomc | 2,003 | Mr. Chairman, I have a question for Vincent. I appreciate the dilemma that you just defined for us. What is your reaction to in a sense abandoning the balance of risk statement and expanding the press release statement to define our position? Does that have merit? How would the market react to that in your opinion? | 63 |
fomc | 2,003 | We have heard different things from different market participants. The Bond Market Association met in this room just last week and devoted one segment of the session to complaining about the balance of risks statement as not being helpful. They indicated a preference that we be a little more descriptive in the statemen... | 228 |
fomc | 2,003 | The problem basically is that we have been dealing with two issues--the GDP outlook and the inflation outlook. We have defined our balance of risks in a manner that any acceleration in GDP growth would of necessity increase the rate of inflation and vice versa. Now it's very obvious that that economic model is flawed b... | 232 |
fomc | 2,003 | I agree with that, and I look forward to your comments. | 13 |
fomc | 2,003 | President Parry. | 4 |
fomc | 2,003 | Mr. Chairman, I have just a comment. We've discussed the probability of deflation quite a bit today, and a lot of attention was focused on the 35 percent probability in the Board staff's exercise. In answer to Tony's comment about the time period used in that simulation, I would note that we did do the exercise beginni... | 119 |
fomc | 2,003 | Any other comments? If not, let me move on using a somewhat different approach to recent developments, and I hope that we will come out with some agreement on how to handle a number of issues. There is no question that the financial data have improved quite dramatically very much across the board. I have in mind not on... | 3,265 |
fomc | 2,003 | Thank you, Mr. Chairman. I support the recommendation of no change in the fed funds rate, and I further support the reasoning behind it as evidenced by the statement you have distributed. | 37 |
fomc | 2,003 | Governor Ferguson, | 3 |
fomc | 2,003 | Thank you, Mr. Chairman. I also agree with your analysis that there are some straws in the wind that suggest it might be wise to wait. I asked two rhetorical questions at the end of my earlier statement. The obvious answer to "If not us, then who?" is us. [Laughter] The more serious question of the two is, "If not now,... | 130 |
fomc | 2,003 | May I interrupt? I should have addressed this. If the data we're seeing from the Federal Advisory Council and the National Federation of Independent Business prove to be a false dawn, we will know it by the time of the next meeting. And if that should be the case, I think the burden of proof will be on those who think ... | 104 |
fomc | 2,003 | That's the implication I took from your comments, so I'm glad you made that more explicit for the benefit of everybody. As for the risk statement, a number of people served with me on the committee that created the wording of the balance of risks sentence three and a half years ago, but I will take sole responsibility ... | 65 |
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