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fomc | 2,003 | No, that has always been a problem, and we've scrupulously avoided resolving that question. | 20 |
fomc | 2,003 | Yes. | 2 |
fomc | 2,003 | President Broaddus. | 5 |
fomc | 2,003 | David, I found chart 12, "Implications for Monetary Policy," very helpful in trying to think through some of the issues we will get to later in the meeting. In the middle panel there, you make the point that one argument for being more aggressive would be a concern that nontraditional approaches would not be effective.... | 140 |
fomc | 2,003 | I may not have understood your question, but in general on this chart one could take everything in column A and say its opposite would apply in column B. So indeed, the greater one's certainty about the effectiveness of nontraditional approaches, the more complacent one could be in taking preemptive action against a fo... | 66 |
fomc | 2,003 | President Moskow. | 4 |
fomc | 2,003 | I had a quick question about the survey on capital spending plans. Obviously, capital spending is the key to the forecast for the near-term future. I was wondering if we had ever done this type of survey before. If so, what level of confidence do we have in it, and has it helped us in the past to predict future actual ... | 73 |
fomc | 2,003 | In January we also had a set of special questions on capital spending plans. I think what might have been a little different this time around--and others can correct me if I'm wrong--is that we tried to structure the questions to get quantitative responses that we could tabulate as opposed to a more qualitative sense o... | 78 |
fomc | 2,003 | So we haven't done it quantitatively before. I'm just wondering about the percentages you cited--that 35 percent are going to increase spending and 20 percent plan to reduce spending. You also said that two-thirds of those who plan to increase spending indicated that they actually have started to place the orders. Our ... | 74 |
fomc | 2,003 | I'd have to say that we have no track record to assess the accuracy of this survey as a predictive tool. | 22 |
fomc | 2,003 | Did you ask for specific percentage changes? | 8 |
fomc | 2,003 | No, it was directional. | 6 |
fomc | 2,003 | So there could be a significant dispersion among those who say they're increasing capital expenditures in terms of how much they're increasing them by. | 25 |
fomc | 2,003 | Yes, that's absolutely right. Across the Banks there was a fairly close correspondence in the answers to the top line question about increase, decrease, or no change. But as President Moskow noted, there were some discrepancies across the Banks with regard to the other questions--the more supportive questions about whe... | 71 |
fomc | 2,003 | Okay, thank you. | 5 |
fomc | 2,003 | President Poole. | 4 |
fomc | 2,003 | I'll pass. I was going to talk about the disclosure issue, but I'll pass at this point. | 20 |
fomc | 2,003 | Governor Ferguson. | 3 |
fomc | 2,003 | I have a very brief question on chart 12. You mentioned the concept that deflation could be self-correcting. The example you gave obviously was productivity improvements and so forth. Are there broader examples of self-correcting deflation? I could imagine perhaps a change in exchange rates and a pretty big pass-throug... | 84 |
fomc | 2,003 | I think the major instance that we had in mind was a favorable productivity growth shock, which in our analysis--as we outlined in the paper--shifts aggregate demand up faster than it does aggregate supply. | 41 |
fomc | 2,003 | All right, thank you. | 6 |
fomc | 2,003 | You could also get self-correcting deflation if you had a monetary standard like a gold standard, which we don't have, of course. An increase in the production of gold-- | 37 |
fomc | 2,003 | Right. | 2 |
fomc | 2,003 | If there are no further questions, would somebody like to start the Committee discussion? First Vice President Stewart. | 21 |
fomc | 2,003 | Thank you, Mr. Chairman. The New York regional economy has shown some signs of improving in the second quarter. Employment has recovered moderately in the past two months, housing markets appear to have retained good momentum, and there are signs of a revival in both New York City's office market and in the region's ma... | 1,061 |
fomc | 2,003 | President Moskow. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. Economic activity in the Seventh District remains sluggish. Our contacts are still cautious, but the pessimism that was so pervasive earlier in the year has eased. Much of the improvement in attitudes came on the business side. For example, in response to the Board's special survey on capital s... | 996 |
fomc | 2,003 | President Parry. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. The Twelfth District economy has shown little sign of ending its lull. Consumer spending did not pick up much as the conflict in Iraq subsided, and it even weakened a bit in some areas. Many retailers have been struggling with thin margins, especially in Washington State and Oregon, which have ... | 908 |
fomc | 2,003 | President Guynn. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. We have observed only marginal changes and subdued economic conditions in the Sixth District since the time of the last meeting. In fact at our board meeting one director suggested that the economy reminded him of the movie "Ground Hog Day." The same scene seems to be repeated over and over aga... | 1,139 |
fomc | 2,003 | President Hoenig. | 4 |
fomc | 2,003 | Mr. Chairman, as others have said about their Districts, the Tenth District economy has remained sluggish since our last meeting but there are some signs of a turnaround and a little more optimism. Labor markets continue to be soft, manufacturing activity has not picked up noticeably, and commercial real estate remains... | 701 |
fomc | 2,003 | President Broaddus. | 5 |
fomc | 2,003 | Thank you, Mr. Chairman. While gathering our regional information this time we were trying to find, as was everybody else, some sign that economic activity was beginning to pick up and turn around. In sum, for our District at least, solid evidence of an actual acceleration in economic activity is very hard to find. Our... | 909 |
fomc | 2,003 | President Stern. | 3 |
fomc | 2,003 | Thank you, Mr. Chairman. My sense of the District economy is that an improvement is under way and that it is broad but not deep. By that I mean that the improvement is broad in that a number of different sectors or different components of aggregate demand are participating in it. But it's not deep because for every pos... | 487 |
fomc | 2,003 | President Poole. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. My contacts in the transportation industry--at UPS, FedEx, and a very large trucking company, J.P. Hunt--all report that current volumes are essentially flat. They don't see any improvement as yet. The way my FedEx contact put it, there's no increase in the number of packages on the belt at thi... | 1,294 |
fomc | 2,003 | President McTeer. | 5 |
fomc | 2,003 | In the Eleventh District, particularly Texas, we share in the national mood shift for the better. Maybe it's because we're eating more ketchup, which is a way to store tomatoes! [Laughter] In terms of employment growth, we seem to have regained our rightful place as leading the national average; we were not leading it ... | 1,172 |
fomc | 2,003 | President Pianalto. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. Economic conditions in the Fourth District have not changed very much during the intermeeting period. Many manufacturers continue to report significant amounts of excess capacity and declining prices for the products they are producing. For the most part they're not planning to acquire new capi... | 625 |
fomc | 2,003 | Why don't we take a break now for coffee and adjourn for ten or fifteen minutes. | 18 |
fomc | 2,003 | President Santomero. | 5 |
fomc | 2,003 | Thank you, Mr. Chairman. Economic conditions in the Third District remain mixed. There are some signs of improvement, but weakness lingers in certain sectors. While the outlook is marginally positive, many of our business contacts continue to express caution about prospects for the rest of the year. Manufacturing in ou... | 1,464 |
fomc | 2,003 | Governor Kohn. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. Let me start with a confession. I'm an outlier. I know this is true in many respects, [laughter] but I'm referring to my forecast for growth next year, which is above the Committee's central tendency and close to that of the staff. I base this bit of exuberance, which I believe to be rational, ... | 1,133 |
fomc | 2,003 | Governor Olson. | 3 |
fomc | 2,003 | I'd like to re-emphasize a couple of data points, especially some mentioned earlier in the chart show. The first involves the new tax law. You may remember that Steve Oliner pointed out some provisions of the law that the staff had anticipated and some that were unanticipated. I would remind you that all of the provisi... | 660 |
fomc | 2,003 | President Minehan. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. I think Al Broaddus stole my thunder, but I must say that really awful weather continues to damp spirits in New England, literally and figuratively. Most of the contacts we talk to seem to be--excuse the phrase--muddling through, [laughter] but there are as yet few truly bright signs. State and... | 1,792 |
fomc | 2,003 | Governor Gramlich. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. At our last meeting there was a feeling that both the real output term and the inflation term in our policy objective function were pointing downward. The forecast envisioned persistent output gaps, and inflation appeared to be dropping below our desired target range--not necessarily to deflati... | 789 |
fomc | 2,003 | Governor Bies. | 4 |
fomc | 2,003 | When I came into this meeting, I had feelings similar to those that President Guynn expressed. In getting ready for today's meeting, I looked back at my notes on the last couple of meetings and found that we were always on the verge of a rebound in economic activity. Obviously the war erupted and created another discon... | 581 |
fomc | 2,003 | Governor Ferguson. | 3 |
fomc | 2,003 | Thank you, Mr. Chairman. You closed our last meeting by using a legal term, the concept of the burden of proof. You suggested that the burden of proof at this meeting should fall on those who thought they saw sufficient growth either in the data or in the outlook that we should stand pat. If I were the judge on the cas... | 88 |
fomc | 2,003 | As the Scottish would say, not the British. | 10 |
fomc | 2,003 | Well no, sir. The British include England, Scotland, and Wales. [Laughter] | 19 |
fomc | 2,003 | Well, you have a law degree and I don't. | 11 |
fomc | 2,003 | We'll split the difference and call it what an island magistrate would say. Let me proceed with the evidence, if I might. First, on the evidence supporting a sense that things are looking better, I'd have to say that there are a number of straws in the wind in support of that assessment. They've been talked about here ... | 1,263 |
fomc | 2,003 | Is that a demotion? [Laughter] | 10 |
fomc | 2,003 | If you went to law school, it's not so bad! | 12 |
fomc | 2,003 | Governor Bernanke. | 4 |
fomc | 2,003 | Thank you, Mr. Chairman. The economy seems poised for recovery in that policy is accommodative and the financial markets are supportive. But on the ground where it counts we have not yet seen clear evidence of a turnaround in investment or hiring. Moreover, we have more than the usual degree of uncertainty about the am... | 771 |
fomc | 2,003 | Thank you very much. Mr. Reinhart. | 10 |
fomc | 2,003 | 5 Thank you, Mr. Chairman. I'll be referring to the materials that Carol Low distributed during the coffee break. The financial market backdrop for the Committee's decision is provided in exhibit 1. Your announcement on May 6 set in motion a significant downward realignment in market expectations, as can be seen in the... | 2,192 |
fomc | 2,003 | Thank you. Questions for Vincent? | 7 |
fomc | 2,003 | Yesterday a number of people raised the question, "If zero isn't really the lower bound, what is?" I think there was a general feeling that we don't know what the lower bound is but that it's below 75 basis points. If we went to a funds rate of 75 basis points with a balanced risk statement, would we build in a market ... | 81 |
fomc | 2,003 | I think there is a risk that moving to balance in the current circumstances would be interpreted as having the funds rate as low as the Committee really wanted it to go. Given that there is a misperception that 75 basis points might be the bottom end of your comfort zone, I think it may very well turn out that way. | 67 |
fomc | 2,003 | President Parry. | 4 |
fomc | 2,003 | I have two questions, Vincent. First, if we look at the middle chart in exhibit 3, which shows the actual real federal funds rate, the current real rate has moved up since the last meeting. How is an easing of 25 basis points an insurance policy? | 55 |
fomc | 2,003 | It is the case that 25 basis points would not get you to as easy a policy as, say, in the first half of last year. | 30 |
fomc | 2,003 | Or about six weeks ago. | 6 |
fomc | 2,003 | But it's also the case that your sense of the forecast going forward is probably more positive than it was a year ago or even in May. | 28 |
fomc | 2,003 | Okay. Second, I just want to raise an issue, and if this is the wrong time, I can come back to it. In exhibit 5 in the bottom left-hand corner, the panel entitled "For today's choice" says that the growth rate risks are balanced. The issue I want to raise at some point relates to the word "sustainable" that shows up as... | 207 |
fomc | 2,003 | One thing I have learned is that people read different things into the word "sustainable." I think some members would view the words "sustainable growth" as saying the growth rate of potential. | 39 |
fomc | 2,003 | Before May that is exactly what it meant. | 9 |
fomc | 2,003 | Whereas I think others have felt that the word "sustainable" also includes a level concept to it. That is, if the economy is well below its level of potential, the growth rate that it could sustain for the next several quarters is actually higher than that of potential. | 56 |
fomc | 2,003 | Well, it seems to me it's a little problematic to view it one way one month and a different way another month. | 24 |
fomc | 2,003 | I think the word is ambiguous. And that's one reason I would like at some point to put on the Committee's agenda a discussion of its communication policy. | 31 |
fomc | 2,003 | Thank you. | 3 |
fomc | 2,003 | Governor Bies. | 4 |
fomc | 2,003 | Maybe this is going to have to wait until your discussion of communication. One of the other things I struggled with as I read the Bluebook wording-- and I see it again in exhibit 5 in the bottom left box--is the part about inflation risks being on the downside. As worried as I am about disinflation, which I see as a s... | 197 |
fomc | 2,003 | In my proposal and in the proposal in the Bluebook I was trying to come up with words that were as generic as possible with regard to inflation. I think the May 6 statement served the Committee well by indicating a direction--the unwelcome risk of a substantial further fall in inflation from an already low level. I'm n... | 95 |
fomc | 2,003 | Could I just interject one point because it follows directly? | 12 |
fomc | 2,003 | Yes, go ahead. | 5 |
fomc | 2,003 | This may be just my own deficiency, but when we talked at the end of the last meeting about separating the two parts of the statement, we were basically doing so on a wait-and-see basis. We voted on the policy action, and then we waited to see the wording of the draft statement. I did not say to myself at that point, "... | 153 |
fomc | 2,003 | It was implied that you were voting on the risks, but when it came to the actual vote and what Normand read to you before the roll call, you voted only on the interest rate decision. | 40 |
fomc | 2,003 | Okay. I thought that was more or less because we hadn't seen the formulation of what the statement was going to say about the risks. I didn't view it as a substance issue. Maybe I'm making too much out of it. At the time we had the vote, had we seen the statement? Did we see it before the vote? | 67 |
fomc | 2,003 | Yes, we handed out the draft statement before the vote. | 12 |
fomc | 2,003 | Then I must be out to lunch. | 8 |
fomc | 2,003 | All I really wanted to do was to get the formal process back to the point where the Committee actually does formally vote on the two aspects of its decision. | 31 |
fomc | 2,003 | Okay. | 2 |
fomc | 2,003 | Further questions? | 3 |
fomc | 2,003 | I want to follow up on Governor Bies's question, just so I understand this. In the Bluebook, the risk assessment language indicates that we're going to say one of three things about inflation: The risks to the outlook for inflation over the next several quarters are weighted to the downside, are balanced, or are weight... | 79 |
fomc | 2,003 | Not necessarily in those exact words, but that sense would be in the statement. There will be a declarative sentence about inflation, and it will follow the direction that the Committee indicates. | 37 |
fomc | 2,003 | So the risk assessment paragraph will not be in the statement? | 12 |
fomc | 2,003 | Not word for word. | 5 |
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