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fomc | 2,004 | I would just add a comment on the house-price side. I would say that a year and a half or two years ago we were very skeptical about house prices having more frothy characteristics. We are quite happy to see a slowing in house-price appreciation. House prices have moved high relative to rents, and I think we are a litt... | 147 |
fomc | 2,004 | But the argument is that, if there were a bubble or a mini bubble, we are already seeing the adjustment to it as house prices are coming back into better balance with rents. | 36 |
fomc | 2,004 | Well, even these rates of house-price appreciation are faster than the growth rates that we've seen in nominal rents so far. So we've got to get that part down into a sort of balance before we even have the ratio of house prices to rents flattening out some. | 53 |
fomc | 2,004 | Is the house-price-to-rent ratio affected by the rapidity of the rise in the homeownership ratio? | 22 |
fomc | 2,004 | I'm not sure. There wouldn't necessarily be any linkages. There is some substitution but-- | 18 |
fomc | 2,004 | People's propensity to move out of rental units and into their own homes clearly has far more effect. | 20 |
fomc | 2,004 | On the margin that could certainly be a factor. My guess is that it wouldn't explain the basic divergence we've seen between house prices and rents. | 28 |
fomc | 2,004 | Governor Ferguson. | 3 |
fomc | 2,004 | This last exchange actually was my question. The assumption you seem to have made is that in fact the relationship between house prices and rents will converge back to the norm. We've talked about some of the risks. Are there other risks that it won't happen that way and that something else is going on--perhaps in the ... | 71 |
fomc | 2,004 | Let me be perfectly clear about one thing. We have a couple of different ways in which we try to make an assessment about what is happening to house prices. One of those doesn't take into account the arbitrage condition, as it were, between house prices and rents; it basically looks at interest rates and cyclical varia... | 222 |
fomc | 2,004 | I gather from what you've said that you have another real-factors model, if you will, suggesting that house prices will go up more. | 28 |
fomc | 2,004 | Yes, that model suggests that house prices could rise faster than what we've put into our baseline. So we've tried to take a position somewhere between those two. | 31 |
fomc | 2,004 | President McTeer. | 5 |
fomc | 2,004 | I would like to ask a two-part question about the employment and unemployment numbers--the household versus establishment data. What is your feeling about what the data are telling us? Why has the household series been outperforming the establishment series for such a long time, and what does that mean? Also, did you d... | 148 |
fomc | 2,004 | We think that the payroll survey is probably giving the more accurate description of what is really going on in the labor market. One of the things that people have looked at in the household survey is whether the estimates of population on which that survey is fundamentally based are correct. If they have overestimate... | 165 |
fomc | 2,004 | Leading up to the December report, new claims for unemployment insurance were running quite low relative to where they had been, and the December report just seemed to come out of the blue. Do you have any comment on that? Will the December employment figures be revised up, do you think? Were there seasonal adjustment ... | 63 |
fomc | 2,004 | That is possible; the December report seemed an aberration to us. It didn't seem consistent with all of the other data we were getting at the time, and we may see a revision in the next report. The claims data are measuring people going onto the unemployment rolls, and we've clearly seen fewer layoffs occurring in both... | 155 |
fomc | 2,004 | In the third quarter, the 8.2 percent growth in real GDP was matched by 9.4 percent for productivity growth. Do you expect some ridiculous number like that for productivity in the fourth quarter? | 42 |
fomc | 2,004 | No. Larry's chart has our productivity number at about 31/4. | 16 |
fomc | 2,004 | I'm just looking at my chart, and I think it may be misplotted. | 17 |
fomc | 2,004 | President Minehan. | 4 |
fomc | 2,004 | As a short extension to the last discussion, I think we're all waiting for the number that we believe is the better number to record employment growth. The payroll survey had started to act the way it should if we're going to have a self-sustaining recovery here. I know everybody was disappointed with the December numb... | 188 |
fomc | 2,004 | As we look at the historical relationship between growth and employment, we think hiring will kick in at some point here, and when it does we may be understating payroll gains. We have revised down our payroll employment forecast in recent rounds. As I look at the blue line in the top left chart, the rise does seem a l... | 110 |
fomc | 2,004 | If we started to see the gains, then I could imagine that, too. [Laughter] | 20 |
fomc | 2,004 | We've seen it before in past business cycles. | 9 |
fomc | 2,004 | Obviously, in terms of our understanding how much productivity and efficiency gains are still there to be harvested--let's say one-time increases--we have almost nothing upon which to gauge that. We can talk to businesses or try to undertake econometric estimates, but we have been consistently surprised over the course... | 521 |
fomc | 2,004 | Mr. Chairman, unfortunately there is a charting error on chart 1in the exhibit on nonfarm business productivity at the bottom left. I just want to point it out so that no one is confused. Rather than plotting the quarter-to-quarter percent changes in those bars we inadvertently plotted the percent change from four quar... | 106 |
fomc | 2,004 | President Moskow. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I have what I hope is a quick question on chart 3 about the saving rate, which is clearly very important to the forecast. In the middle panel, you say, "The current saving rate is still well below the level that many observers often think of as a more normal rate." But below that in one of the ... | 116 |
fomc | 2,004 | I was using what I thought was constructive ambiguity there. [Laughter] I'm not sure what most observers think of as the normal rate, but when one reads Wall Street newsletters and things like that, one often sees numbers like 6 or 7 percent. I prefer the term "target" because I think it implies what we think is actual... | 169 |
fomc | 2,004 | But as you see this expansion, what are we targeting on? | 13 |
fomc | 2,004 | In the extended Greenbook simulations that are presented in the Bluebook, we have real interest rates rising out to 2010. Consistent with the baseline of that extended forecast in the Bluebook, we would have by 2010 a target saving rate on the order of 6 percent. But that's not what we should be thinking about for 2004... | 75 |
fomc | 2,004 | But we could see a sharper upward movement in the saving rate. | 13 |
fomc | 2,004 | Absolutely. And as I pointed out, that 2.8 percent saving rate that we've written down for the end of 2005 still is a bit below target, so we could clearly get a more complete correction to target and maybe even some movement above that target. | 54 |
fomc | 2,004 | Thank you. | 3 |
fomc | 2,004 | Who wants to start the Committee discussion? President Parry. | 12 |
fomc | 2,004 | Thank you, Mr. Chairman. Economic activity in the Twelfth District continues to gain momentum. For example, retailers in the West had an encouraging holiday season, with considerably stronger sales this year than last year. Spending by businesses is also picking up. The bulk of our contacts say that they will increase ... | 942 |
fomc | 2,004 | President Moskow. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Economic activity in the Seventh District continues to pick up, and our business contacts are clearly more optimistic than they have been in years. On Friday, the Chicago purchasing managers will release their January report. The index will be at 65.9, the highest level in nearly twenty years; ... | 910 |
fomc | 2,004 | President Poole. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I've talked recently to most of my usual contacts. My Wal-Mart contact said that he views the situation as a bit confusing. I've mentioned before the midmonth paycheck cycle that has been evident in the pattern of sales at Wal-Mart. Wal-Mart had sales on January 16 that were 12 percent above sa... | 1,340 |
fomc | 2,004 | President Guynn. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. The economic picture unfolding in our region, like that for the nation, continues to be encouraging. Both the hard data and the accompanying commentary from merchants confirm that holiday sales were quite positive. We continue to see a changing mix of fortunes among traditional retailers, speci... | 673 |
fomc | 2,004 | President Santomero. | 5 |
fomc | 2,004 | Thank you, Mr. Chairman. Economic conditions in the Third District continue to improve, and business sentiment is positive. Manufacturing activity in the region continues to expand, and the index of general activity in our January business outlook survey showed a strong rise to 38.8 percent, the highest level we have s... | 1,346 |
fomc | 2,004 | President Hoenig. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. The Tenth District economy has actually strengthened further since the last meeting, and business contacts are frankly relatively optimistic about the year ahead. I attended a tech conference near Boulder about two and a half weeks ago. That conference is held each year at about the same time. ... | 810 |
fomc | 2,004 | There is coffee out there, so why don't we break for ten minutes. | 15 |
fomc | 2,004 | President Stern. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. The District economy is doing reasonably well, and most indicators of economic activity are positive. Let me summarize that situation quickly, starting with household demand. On balance, auto sales continue to be fairly strong, and tourism is having a good year in the District. Overall consumer... | 608 |
fomc | 2,004 | President Minehan. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. The weather has been frigid in New England, but the economy may actually be heating up. Anecdotally, many contacts in manufacturing are more upbeat, and our contacts in the retail arena reported a noticeable pickup in business in the fourth quarter. Business confidence in Massachusetts surged i... | 1,101 |
fomc | 2,004 | President Broaddus. | 5 |
fomc | 2,004 | Thank you, Mr. Chairman. As in other regions of the country, the Richmond District economy is increasingly signaling a sustained economic expansion, at least as far as demand and production are concerned. Our sense is that holiday sales were solid. And service-sector companies in our District--there are many, including... | 1,208 |
fomc | 2,004 | President Pianalto. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. By most measures, economic conditions in the Fourth District are improving. Households have continued to purchase new and existing homes, automobiles, and light trucks at a solid pace. Bankers in the District are reporting that credit quality in their consumer loan portfolios has been very good... | 915 |
fomc | 2,004 | Governor Kohn | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. Once again I'm an outlier in terms of my projection of the strength in GDP growth for this year, as I can see from the charts we looked at this morning. I want to note, however, that someone else is even more ebullient than I am, but that person has not yet "fessed up." [Laughter] For me, the l... | 1,200 |
fomc | 2,004 | Vice Chair. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. Developments in the Second District seem to be tracking those in the nation as a whole. We are strong where the national economy is strong. The Empire survey shows very high levels of business confidence, orders, shipments, and most things we measure, but the slope of the increase has flattened... | 1,125 |
fomc | 2,004 | Governor Olson. | 3 |
fomc | 2,004 | President Broaddus used the term "bottoming out," and I think that expression also applies to the two issues that I want to discuss--fiscal policy and the banking system. First, with respect to fiscal policy, you undoubtedly know that the omnibus spending bill passed the Senate last week and was signed by the President... | 763 |
fomc | 2,004 | Governor Gramlich. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. We seem to be entering phase 2 of the fight against the downturn. Phase 1 involved bringing in all the fire trucks--fiscal expansion, monetary accommodation, and language such as "considerable period." The fire is out now, the economy is growing at a healthy rate, and the pattern of vigorous gr... | 997 |
fomc | 2,004 | Governor Ferguson. | 3 |
fomc | 2,004 | Thank you very much, Mr. Chairman. The incoming data, as almost everyone has noted, appear to validate the confidence that emerged at the last meeting that a sustainable expansion seems most likely to be under way. Almost all components of domestic final demand seem to be on a relatively firm footing. Household consump... | 1,050 |
fomc | 2,004 | President McTeer. | 5 |
fomc | 2,004 | As I suggested yesterday, my guess about future economic conditions is very close to the Board staff's forecast. I'm just a little more optimistic than they are on real growth and unemployment. So, Don, I may be your guy! [Laughter] The economy appears to be in the sweet spot of strong growth combined with very low inf... | 511 |
fomc | 2,004 | Governor Bernanke. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I find it amusing that yesterday everyone denied being in the forecasting business and today there is a round of forecasts. [Laughter] | 33 |
fomc | 2,004 | You heard me refer to mine as a guess. | 10 |
fomc | 2,004 | Seventeen forecasts and one guess! One of the key issues in the forecast, of course, is the role of the output gap, and I have a few comments to make about that topic. The use of the output gap or the Phillips curve relationship in forecasting inflation was a subject at our two-day meeting in June 2002. At that meeting... | 1,203 |
fomc | 2,004 | Governor Bies. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. My comments coming at the end of our go-around are going to be repetitive of some of the views expressed earlier. So let me just summarize my views. First, I agree with many of the comments around the table that this recovery has moved into a new phase. We've moved from the stage of the busines... | 843 |
fomc | 2,004 | Vincent, you're on. | 6 |
fomc | 2,004 | 6 Thank you, Mr. Chairman. I'll be referring to the material that Carol Low is handing out. There is a Zen koan--which is a meditation riddle spelled K-O-A-N, not a relative of the Governor--that holds that the most difficult act of all is to do nothing well. This sentiment seems to apply to today's meeting. As can be ... | 2,311 |
fomc | 2,004 | Any grammatical questions? [Laughter] | 8 |
fomc | 2,004 | May I ask a question? If you look in the Bluebook, the range of estimates of the real equilibrium rate has shifted up substantially, which could suggest that we're a lot farther away from the real equilibrium rate than we thought. This is especially true for the estimates based on the FRB/US model. Can you comment on t... | 68 |
fomc | 2,004 | Well, you are right. The estimates of r* have moved up rather sizably, as you can see in the bottom panel of chart 8 in the Bluebook. The estimate from FRB/US is up about 1 percentage point, meaning that the gap between actual r and r* is bigger than you thought over the prior two years and that the current stance of p... | 123 |
fomc | 2,004 | Okay. | 2 |
fomc | 2,004 | The revision principally has to do with a sort of respecification of the model rather than objective changes in economic circumstances. As Vincent said, a significant chunk of that came about by how we were modeling the term structure premium. So I think that upward revision should not be taken as a change in economic ... | 92 |
fomc | 2,004 | It's wider. | 3 |
fomc | 2,004 | I think the other thing to note when you look at that chart is that the band is wider as well. Our uncertainty about r* is very sizable. | 31 |
fomc | 2,004 | Yes. | 2 |
fomc | 2,004 | President Broaddus, did you have a question? Are there any other questions? If not, let me get started. I must say after listening to this roundtable discussion that I find it hard to recall a degree of buoyancy like the one that comes across today. Unless I'm mistaken, Committee members have not reported on indication... | 2,973 |
fomc | 2,004 | Thank you, Mr. Chairman. I ended my previous presentation by saying that I would be very cautious about moving from the very accommodative stance we currently have. Rates are extremely low and obviously much lower than they have to be over the long run. But from a risk-management perspective, as you like to say, I thin... | 624 |
fomc | 2,004 | I certainly agree with that. President Poole. | 10 |
fomc | 2,004 | Mr. Chairman, I support the recommendation. If in nine days, when we get the employment report, it's a weak one--I hope it's not--much of the increase in interest rates that we will see this afternoon will go away, but we'll be out from under the "considerable period" language. If we remove the "considerable period" la... | 133 |
fomc | 2,004 | Governor Gramlich. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. First off, I would endorse many of the dovish comments Don started with. [Laughter] But in the meantime I'll be relieved to drop the "considerable period" language. I think you're right that we're looking at the mirror in that the market is listening to us. And that's even more than normally ne... | 147 |
fomc | 2,004 | President Hoenig. | 4 |
fomc | 2,004 | I support your recommendations, Mr. Chairman. On the funds rate, I absolutely agree with you. On the change in language, to the extent that it adds to our flexibility I think it's a good time to make the change. So I'm very supportive. | 51 |
fomc | 2,004 | President Parry. | 4 |
fomc | 2,004 | Mr. Chairman, I support both your recommendation on the rate and the change in the wording. I have a question. At our last meeting we voted on the exact words in the press release. Are we going to do that again? | 47 |
fomc | 2,004 | Yes, we shall. | 5 |
fomc | 2,004 | Thanks. | 2 |
fomc | 2,004 | President Moskow. | 4 |
fomc | 2,004 | Mr. Chairman, I support your recommendation for the rate. My preference on the sentence would be somewhat different from what you're recommending. I would prefer to have you explain "considerable period" in more detail in your testimony. It will be delivered after the jobs report comes out, so you will have the flexibi... | 207 |
fomc | 2,004 | President Stern. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. I support your recommendation on the rate and on the change in language. I would reiterate one point I've tried to make before--apparently unpersuasively--that further disinflation or even a touch of deflation, if it's stemming from rapid productivity growth, is not necessarily a cause for conc... | 69 |
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