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fomc | 2,004 | Governor Bies. | 4 |
fomc | 2,004 | Thank you, Governor Ferguson. I support the Chairman in the sense that I really don't want to do any more forecasting. In fact, I would rather make all of our twice-a-year forecasts rolling ones and revise them for four quarters ahead only. I'd prefer not to go past a one-year horizon because I tend not to have much wi... | 254 |
fomc | 2,004 | President Poole. | 4 |
fomc | 2,004 | I would make two changes and two changes only. One would be to substitute the core PCE for the total. I emphasize substitute. If we do both, we have an implicit energy price forecast in there, and I don't think that's useful. Second, I think we ought to be able to survey the Committee members for any changes in their f... | 125 |
fomc | 2,004 | Governor Kohn. | 4 |
fomc | 2,004 | I wouldn't elevate the forecast either for all the reasons people have noted, and I certainly wouldn't want to do psychological damage to the Chairman! I'm not quite as negative on them, I think, as Governor Gramlich and Chairman Greenspan. I do think the forecasts give a sense of where the central tendencies of the Co... | 474 |
fomc | 2,004 | President Moskow. | 4 |
fomc | 2,004 | I agree, Mr. Chairman, with the way you characterized this. I don't think the forecasts serve a useful purpose here. Also, though people have very good ideas for minor tinkering that will improve them--the core PCE, maybe lengthening the time period, and things of that sort--quite frankly, I think there's a danger in d... | 170 |
fomc | 2,004 | Vice Chairman Geithner. | 6 |
fomc | 2,004 | I have only the weakest of convictions on this issue. I think Mike Moskow's point is a very interesting one: If there are sensible changes that we could all embrace in how we present these forecasts but we're all against or uncomfortable with elevating their importance, it may be a mistake to contemplate sensible chang... | 191 |
fomc | 2,004 | Governor Olson. | 3 |
fomc | 2,004 | Just as a reminder, when we discussed the first two issues--risk assessment and the release of the minutes--we were talking about communicating FOMC decisions, and we have a very important responsibility in that regard. But I agree that we are not in the business of making forecasts. Also, I would remind people of the ... | 446 |
fomc | 2,004 | Let me give you my perspective on this issue. I am in the camp that says we have a range of skills with respect to forecasting, but my observation over the years that I've been here is that we are mainly consumers of a range of forecasts. We are looking at forecasts to see whether we agree or disagree and to assess wha... | 559 |
fomc | 2,004 | Let me just mention one issue that we might also put on your list. I think all of us would care very much about the Chairman's psychological well being. What is the legal requirement in terms of whether these forecasts have to go in the testimony or just in the report itself? | 56 |
fomc | 2,004 | In the past it has been in the report and not in the testimony. | 15 |
fomc | 2,004 | I think we have already crossed that bridge. | 9 |
fomc | 2,004 | Yes, just in the report. There have been times when the Chairman doesn't refer to them. | 19 |
fomc | 2,004 | There have been times when they are not even included in the testimony. In the last ten years the Chairman has almost never referred to them in the reading draft of the testimony, but there have been times when they haven't even been in the text of the formal testimony submitted. They are always in the report. | 61 |
fomc | 2,004 | So do you get asked about them, then? | 10 |
fomc | 2,004 | If they are in the report, no. There were occasions in the past when we were clearly in a recession and the forecast was for no recession. And the issue that Governor Ferguson raised is a really important one in the sense that these are not best-estimate forecasts. We can basically come out in, say, the June meeting wi... | 158 |
fomc | 2,004 | I don't know if anybody has ever thought of this, but could there be in a special appendix to the report some verbiage about some of these caveats? | 33 |
fomc | 2,004 | We don't know what the caveats are! Then the whole question is why we are doing it. | 20 |
fomc | 2,004 | As you know, I would prefer not to. | 10 |
fomc | 2,004 | In the last report we significantly trimmed back the discussion in the testimony. Basically we just presented the table, did the table reading, and did not offer an interpretation. | 33 |
fomc | 2,004 | I don't think we got a negative response to that as far as I'm aware. | 16 |
fomc | 2,004 | I would say that there are basically two things that go wrong with regard to the testimony process. One is that occasionally there will be questions such as: Six months ago you were forecasting this, and it didn't happen. What went wrong? | 47 |
fomc | 2,004 | It's only that. It's never "you were right!" | 11 |
fomc | 2,004 | The second is that the forecasts are numbers, and it's easy for reporters to characterize them. So sometimes the newspaper articles that come out after the testimony are not what we would have expected because the reporters latch on only to the numbers. | 46 |
fomc | 2,004 | It may be a statistical monstrosity, but it's much better to leave it there than to have the Congress demand the staff forecast. So we should just leave it alone. | 35 |
fomc | 2,004 | Well, that's why we have it. That's how we got into it. | 15 |
fomc | 2,004 | It's a legal requirement. | 5 |
fomc | 2,004 | That's where it came from--to protect the staff. That's the reason that Don Kohn was mentioning that. | 22 |
fomc | 2,004 | And that's still very important, so let's leave it. | 11 |
fomc | 2,004 | The sunsetting didn't affect the legality? | 8 |
fomc | 2,004 | It's not required. | 4 |
fomc | 2,004 | No, it wasn't even required by law before. By law the only thing that was required was monetary aggregate targets. And this was appended to those targets partly because the Committee was supposed to say how the monetary aggregate targets lined up with the Administration's economic forecast. So this was a way of working... | 86 |
fomc | 2,004 | I think the wording is a discussion of "prospects." | 12 |
fomc | 2,004 | Right, "prospects." | 6 |
fomc | 2,004 | The memo mentions the question of whether or not an MPR without a forecast would comply with the law. That's an open question. | 26 |
fomc | 2,004 | It was an open question because the Committee had established a precedent and they interpreted "prospects" to mean these forecast numbers. But the issue isn't whether you will be sued; it's whether you'll get a worse outcome when the Congress pushes back. | 48 |
fomc | 2,004 | Let me close this because we want to get on to something else. It strikes me that the sense of the group is retaining the status quo in terms of this last question. We have a long history of doing forecasts. I'm not sure that we'd be better served by not doing them. There may be some room to do some tinkering on the ed... | 121 |
fomc | 2,004 | Somewhat brilliant. | 4 |
fomc | 2,004 | Thanks to the chairman of our working group who obviously came out exactly where he wanted! [Laughter] | 21 |
fomc | 2,004 | No comment. | 3 |
fomc | 2,004 | We have time to hear Dino Kos. Dino. | 10 |
fomc | 2,004 | 3 Thank you, Mr. Chairman. In the interest of getting everybody out of here quickly, I'll read even faster than usual today. If the marketplace is designed to frustrate the majority by moving against conventional wisdom and--more importantly--the positions of most market participants, the fixed-income market during thi... | 1,926 |
fomc | 2,004 | Does the failure of banks to window-dress have anything to do with the Freddie Mac fiasco or any of the other related manipulations by banks? | 30 |
fomc | 2,004 | I don't know the details, but there was apparently some discrepancy between the way the loans were classified and the way they were actually performing. But that's something I understand the FSA will be looking into. More details to come, I'm sure. | 48 |
fomc | 2,004 | Questions for Dino? If not, Governor Ferguson. | 10 |
fomc | 2,004 | I move approval of the domestic operations. | 8 |
fomc | 2,004 | Thank you. Without objection, they are approved. We are adjourned until 9:00 a.m. tomorrow. January 28--Morning Session | 31 |
fomc | 2,004 | Good morning, everyone. David, do you want to go over this material that was just distributed? | 20 |
fomc | 2,004 | I think Larry was planning on talking about it. | 10 |
fomc | 2,004 | 4 Thank you, Mr. Chairman. We have distributed to you an extra sheet that has the latest information from this morning's release on the orders and shipments data. The lines that we typically like to look at are the orders excluding aircraft, shown part way down the table, and the "all other" category which encompasses ... | 196 |
fomc | 2,004 | The first quarter is going to have an upward revision? | 11 |
fomc | 2,004 | We'll have an upward revision to Q1 and probably a downward revision to Q4. | 17 |
fomc | 2,004 | Let me ask something further. A problem in this survey is the very peculiar movement of unfilled orders for communications equipment. You may recall--I'm not sure what month it was but probably October--that there was an extraordinary rise in unfilled orders, and it looked idiosyncratic. I gather that when we checked w... | 188 |
fomc | 2,004 | Well, the one other thing that I would note, as we pointed out in the Greenbook as well, is that the level of new orders has been running above the level of shipments, implying an increase in unfilled orders for some time now for the "all other" category. So, again, we take that to be a favorable sign. Shall we get sta... | 80 |
fomc | 2,004 | Please. | 2 |
fomc | 2,004 | 5 For the chart show, Sandy Struckmeyer, Steve Kamin, and I will be referring to the packet of materials that was distributed to you. While putting together the Greenbook, two of the questions we asked ourselves were, first, "Where is the economy now?" and, second, "What are the forces that should sustain above-potenti... | 2,269 |
fomc | 2,004 | Your first international exhibit presents an overview of developments in selected international financial markets. As can be seen in the top left panel, a key development over the past half-year has been the renewed slide in the foreign exchange value of the dollar. The decline in the broad dollar (the black line) was ... | 2,989 |
fomc | 2,004 | Your next exhibit discusses key trends in the labor market. As Larry noted in his first chart, until very recently, payroll employment has been notably weak in this expansion. As shown by the blue line in the top left panel, gains in payroll employment have run well below the typical postwar cyclical experience and hav... | 1,520 |
fomc | 2,004 | Let me go sequentially in reverse. First, a minor issue on chart 10. You mentioned that the decline in the unemployment rate was held down by the rise in household employment. My recollection is that the unemployment rate is a sample statistic, independent of the population number from which we measure household employ... | 140 |
fomc | 2,004 | Yes, they are. | 5 |
fomc | 2,004 | Shouldn't they be in constant price SDRs? I ask because, clearly if I were to convert these data into euros, which I could just as easily do, the exports would not show as much of an uptrend, though I assume they still would go up. | 54 |
fomc | 2,004 | They would most likely still go up, but I think you're quite right. | 15 |
fomc | 2,004 | In other words, the decline you show here has exports going down with IP in 2001, which makes it look highly correlated. Yet a goodly part of that is that IP is physical, and this is nominal; but far more importantly, it's a function of which exchange rate you quote the numbers in. I'm merely indicating that I assume--... | 101 |
fomc | 2,004 | That is very much the case. I completely agree with you that the measure you are proposing probably would be superior. The constant price data for all of these different countries, which we were getting from their national data sources, were not available. Transforming it into SDRs is a very good idea and would be wort... | 64 |
fomc | 2,004 | Prices are not moving enough to make that much difference here. They probably don't do too much violence, but the exchange rate does. | 26 |
fomc | 2,004 | That is correct, and I think you're quite right that transforming the data into SDRs would be useful. | 21 |
fomc | 2,004 | Could you actually run it using SDRs? I would be curious to see what it looks like. | 20 |
fomc | 2,004 | Absolutely. That said, one of the issues we've been focusing on in our forecast of trade is the fact that trade does seem to be much more sensitive to industrial production than it does to GDP. That's in part because much of trade is composed of manufactured goods, which are more related to industrial production than t... | 103 |
fomc | 2,004 | Going back to chart 3--prior to the NIPA revisions, the flow of funds saving rate using the NIPA definition and the saving rate as measured by actual NIPA disposable income minus consumer outlays were remarkably close, and the pattern of the gap between them wasn't too bad. We haven't revised the flow of funds numbers,... | 127 |
fomc | 2,004 | I don't think we have a conclusion on that. Accuracy has to be defined as relative to what? | 20 |
fomc | 2,004 | Well, relative to the real world. Let me put it this way: In the real world, there is no discrepancy between the flow of funds saving rate and the NIPA saving rate. | 38 |
fomc | 2,004 | I understand, but I don't have any third source of the real world against which to compare the other two. The one thing we can perhaps do is to ask ourselves which of the two measures, in terms of the econometrics, helps us best in transforming the data into an understanding of consumption behavior or household behavio... | 75 |
fomc | 2,004 | We've tried both. | 4 |
fomc | 2,004 | Yes, and we can't definitively say which has won over the other. In all of our work we stay with the NIPA measure because then we are working with a consistently measured system. | 38 |
fomc | 2,004 | There's only one discrepancy. | 5 |
fomc | 2,004 | Right. So that's why we do all of our work using the NIPA data. Obviously we do look at what's happening to household balance sheets, and the flow of funds saving rate is a part of that household balance sheet system. | 46 |
fomc | 2,004 | But remember, you're endeavoring to forecast the NIPA saving rate with the flow of funds household wealth data. And household wealth data are obviously directly convertible into a saving rate. | 35 |
fomc | 2,004 | It's the flow of funds saving rate. | 8 |
fomc | 2,004 | So when there is a discrepancy, as is now emerging, I assume that has some noise effect on the use of that particular system. | 27 |
fomc | 2,004 | Right. | 2 |
fomc | 2,004 | President Parry. | 4 |
fomc | 2,004 | Thank you. Sandy, I have a question about inflation related to the panel on the top right of chart 13. If we were looking at this chart in quarterly terms, we would be seeing at the end of 2003 a rate of 0.5 percent--that's the number in the Greenbook--and then it goes up to 1.0 percent in the first quarter of this yea... | 152 |
fomc | 2,004 | As we looked at the consumer price data for November and December, we were surprised at the large decline in core prices in November. In examining the detail, the declines were in some components for which we did not expect continued large price reductions. One of the categories in which we saw huge price declines in t... | 331 |
fomc | 2,004 | President Poole. | 4 |
fomc | 2,004 | First, I want to thank Dave Stockton and Dave Wilcox for the memo they prepared in response to my request. I thought it was very helpful. Without going into it, I will say that I think it provides mild support for my position, but that's another matter. [Laughter] | 58 |
fomc | 2,004 | Are you going to let the rest of us in on at least the subject matter? | 17 |
fomc | 2,004 | This was in response to my request that the Greenbook forecast be conditioned on the market's federal funds rate assumption rather than the Greenbook assumption. It's a very good memo, and I think that it explores the issues in a very fine fashion. I'll just repeat my summary that I think it presents a case for my posi... | 309 |
fomc | 2,004 | President Poole, if we went back to June of last year and had this conversation, you would have said suppose we had forecast for the second half of the year what actually transpired. If the story was 6 percent GDP growth in the second half of last year, do you think the markets would possibly have forecast us not to be... | 490 |
fomc | 2,004 | If I may make a follow-up comment: The issue to me is not so much who wins the horse race. Obviously, we can point to particular cases where one approach is superior by looking at the statistical evidence you present. In fact, in recent periods I believe the market forecast has been perhaps ever so slightly better but ... | 256 |
fomc | 2,004 | Obviously, we are looking at those signals from the market and asking ourselves precisely those kinds of questions. We are not ignoring that. We think we have incorporated our best judgment as to what signals the markets are sending us. It wasn't that we weren't paying attention to what the market was saying in late 20... | 510 |
fomc | 2,004 | Governor Gramlich. | 4 |
fomc | 2,004 | I put my name on the list because I wanted to ask a mere question, but since this other issue has come up let me give my view on that. I tend to be on the Stockton-Wilcox side on this issue. It seems to me that, for the staff forecast to be maximally useful to us, we want to know what is being assumed and how it all fi... | 331 |
fomc | 2,004 | They've started to fall. Rather, the rate of increase is coming down. | 16 |
fomc | 2,004 | Yes, the rate of increase is coming down. Another issue discussed in the press is the earnings-price ratio, and that ratio was a subject discussed in the briefing on Monday. The earnings-price ratio is at reasonably high levels, which means that prices must not be extraordinarily high. Prices are the denominator there.... | 93 |
fomc | 2,004 | I will agree with you. [Laughter] It is true that in our baseline forecast we don't see any bubbles. We've tried to lay out the possibility of risks and point out to you where, if we are wrong in that judgment, bubbles could occur. For example, by our forecast there isn't a bubble in house prices; but if there were, we... | 120 |
fomc | 2,004 | The earnings-price ratio is a function of the low interest rates. We have low discount factors going out on earnings, which create the high ratio of price to earnings. One would really have to argue that the bubble is in the bond market and not in the stock market, which raises interesting inflation expectations. | 60 |
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