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fomc | 2,004 | Without objection they are approved. David Stockton and Karen Johnson, please. | 14 |
fomc | 2,004 | Thank you, Mr. Chairman. Judging by the standards of the last few meetings, perhaps the biggest news is that we have made no major changes to our Greenbook forecast since it was published last Wednesday. Of course, I'll admit that it helps when there are few data to get in our way. But even reaching back to the August ... | 2,788 |
fomc | 2,004 | The baseline forecast for real output growth in the rest of the world is little changed from that in the August Greenbook. This is the case despite substantial market volatility of, and much media attention to, global oil prices. The primary reason is that despite the intermeeting fluctuations, the path of oil prices i... | 1,484 |
fomc | 2,004 | For the first time, Karen, you seem to be painting a short-term picture of an unsustainable pattern in the current account deficit. As I have listened to you in the past, the issues as I've heard them are that we always talk of the need for a much higher rate of increase in exports than imports to close the huge existi... | 261 |
fomc | 2,004 | Well, I like to avoid the words "unsustainable" or "sustainable" because then you'll ask me what makes something sustainable and I can't answer that question. | 33 |
fomc | 2,004 | I'm not asking a question, I'm just making a statement. | 12 |
fomc | 2,004 | I absolutely agree with everything you said. | 8 |
fomc | 2,004 | Am I inferring correctly what you say? | 9 |
fomc | 2,004 | Yes. And where we saw it most clearly was when it came time to look at the contribution of those numbers to GDP. In the past, there were those of us, such as myself, who were somewhat of a Cassandra regarding the external deficit, but we were talking tenths of a percentage point one way or another in terms of the effec... | 419 |
fomc | 2,004 | I think that's a very useful insight. | 8 |
fomc | 2,004 | Let me just provide a little domestic-side perspective on that. Obviously, one of the issues that we were struggling with in this projection is that we have a surprisingly shallow trajectory for the funds rate. And you might wonder why that isn't showing through more forcefully in this forecast, but it is on the domest... | 148 |
fomc | 2,004 | I have one quick question on energy issues. On virtually all the previous occasions when oil prices went up, it was difficult to distinguish between rising prices of gasoline and home heating oil and rising crude import prices. So the estimate of the tax effect from imported crude and the impact of gasoline prices on P... | 173 |
fomc | 2,004 | I think I can say unequivocally that on the econometric side a couple of months of extra data are not going to allow us to identify these things. Now, there is an interesting coincidence that consumption was especially weak not only as oil prices were rising but as margins were increasing substantially, and there was s... | 209 |
fomc | 2,004 | An interesting question is whether drilling is a function of profits at the production level, which one has always assumed to be the case, or if the aggregate consolidated profit is more relevant. I say that because the implication here is that the propensity to spend out of the refining marketing margin may be much lo... | 91 |
fomc | 2,004 | I have a question for David. I think one way of summarizing the Greenbook forecast is to say that the equilibrium real federal funds rate that is implicit in that forecast is very low. As I read it, it's on the order of 1 percent, which I interpret as very depressed relative to the equilibrium real funds rate that woul... | 235 |
fomc | 2,004 | To start with the last question, just as a benchmark we ran an alternative model simulation in which the real exchange rate depreciated at a 5 percent annual rate over the forecast period, in contrast to the 11/2 percent decline that we've actually built into the forecast. That 5 percent decline produced enough additio... | 122 |
fomc | 2,004 | And is that what the FRB/US model would predict? | 13 |
fomc | 2,004 | Yes, that was with FRB/US. I would say that Karen, if she were to run FRB/Global, might come up with slightly different estimates, but we do see that as an important element. Now, in terms of explaining the difference between the implicit equilibrium funds rate in the staff forecast and that which FRB/US would produce,... | 221 |
fomc | 2,004 | President Moskow. | 4 |
fomc | 2,004 | My question actually relates to this last discussion. I want to ask about the alternative simulation on the international side--the 30 percent decline in the real value of the broad dollar index. When I saw the results, I was a little surprised that they weren't more serious in that 30 percent depreciation scenario. Bu... | 132 |
fomc | 2,004 | Unless you happen to have an urn and a few balls that I can select from, I don't think I'm in any better position than you are to judge that outcome. When we have in some previous Greenbook simulations--or in the June FOMC presentation, for example--added an asset market disruption and volatility as a consequence of a ... | 190 |
fomc | 2,004 | Or ours unwind. | 4 |
fomc | 2,004 | Yes. But I'm looking at a scenario that would have a net positive shock to the global economy so that it's not that our incomes in the future are likely to be lower but that foreign incomes appear likely to be higher. Foreign assets look as if they should be valued more highly. The relative differential shows through t... | 266 |
fomc | 2,004 | If we had this sharp drop in the dollar, you point out that it would affect confidence of U.S. business firms and U.S. consumers. How would you see that playing through? | 38 |
fomc | 2,004 | Well, presumably that would lead to a step-up in the U.S. saving rate. We would get some benefit from a dollar decline. Remember, a drop in the dollar is a very expansionary shock to the U.S. economy. When we run that shock sort of naked, the way we did this time, and ask the model what the outcome would be, the Taylor... | 304 |
fomc | 2,004 | I think the difference between us and Korea is that they borrow in foreign currencies whereas we borrow in our own currency. | 23 |
fomc | 2,004 | Right. | 2 |
fomc | 2,004 | So a depreciation of their currency creates balance sheet effects. | 11 |
fomc | 2,004 | It has some balance sheet effects that complicate the household sector's problems and the nonfinancial corporate sector's problems, and typically there are some balance sheet effects that threaten the banking system. Now, for sure, we don't think that a depreciation in the dollar would have serious consequences for the... | 152 |
fomc | 2,004 | Thank you. | 3 |
fomc | 2,004 | President Minehan. | 4 |
fomc | 2,004 | I have many of the same questions. Let me just raise a couple of issues. The first is on the investment income swing that shows up in the capital account. I don't profess to be anywhere near an expert on this, but I had always thought that those numbers are typically positive because we generally make more money abroad... | 92 |
fomc | 2,004 | The holdings abroad need to be divided into two basic categories, one of which is the net foreign direct investment story and the other is the portfolio--that is, stocks and bonds and bank claims. What you've described has characterized the foreign direct investment portfolio. We have, on average, earned higher rates o... | 317 |
fomc | 2,004 | I have just one other question. For many countries around the world, a lot of their growth ends up being export oriented and we're the big importer. So there is a kind of codependence between us and the rest of the world as regards the value of the dollar. The numbers get awful, but how does that codependence unwind? | 69 |
fomc | 2,004 | Well, one of the features in the Greenbook simulation, going back to the prior question, is the model's ability to say that foreign policymakers act in a way that speaks to this codependence. One problem that we face collectively in the global economy is that the low interest rate environment for all concerned does lim... | 447 |
fomc | 2,004 | We've raised an issue of very outsized numbers and the potential for financial instability. But there seems little we can do here in this country on the monetary policy side--possibly a lot we could do on the fiscal policy side but not on the monetary policy side. | 52 |
fomc | 2,004 | The essential monetary policy contribution, it seems to me, is to keep U.S. inflation low and U.S. output as close to potential at a sustainable rate as possible. This is what you would do in any event. | 45 |
fomc | 2,004 | Not quite. Now, if I believed in the efficacy of intervention, which I do not, it would not surprise me to be sitting here and observing the sequence of events that Dino has described this morning. Dino is talking about reductions in volatility and related increases in stability. We're looking at an extraordinarily sta... | 462 |
fomc | 2,004 | But as a footnote to the 1980s, that was a time when the rest of the world was growing; it enjoyed a much better macroeconomic performance. Japan was growing strongly. Europe was doing better. The domestic demand contributed from outside the United States was healthier at that point. | 59 |
fomc | 2,004 | And with respect to the issue that we discussed earlier, the absolute level of our current account deficit was lower. | 22 |
fomc | 2,004 | Yes. | 2 |
fomc | 2,004 | When Karen did her June paper, I asked her if she was going to recommend Plaza Two--that the paper was just the stalking-horse for recommending Plaza Two. But I think it's hard to conceive of a strategy that we could manage--you weren't suggesting this, but let me just say it--where to deal with the risks in our presum... | 97 |
fomc | 2,004 | You couldn't do it and control it. | 8 |
fomc | 2,004 | Yes. I think the lesson of those various periods is just how hard it is--once the expectation is created that as a matter of policy we're going to try to induce a substantial decline in the value of our currency--to contain it or to slow it and manage it. And yet if we could immaculately induce the rest of the world to... | 92 |
fomc | 2,004 | Well, that in a way is what we've been trying to do. We've been trying to do that obviously by persuading the Chinese and others who have been intervening in the foreign exchange market. What I find disturbing about the scenario that Karen has outlined is that we may achieve the adjustment in a wholly inappropriate mac... | 214 |
fomc | 2,004 | Or the G-10 | 5 |
fomc | 2,004 | Or the G-10. The trouble is that if we go from G-7 to G-10, I'm not sure that's an improvement. So as a matter of course, I would not merely say that there's nothing we can do about it and that we should just forget about trying to do so and go on our merry way. The problem is that no one else is doing anything. The pr... | 120 |
fomc | 2,004 | I'll yield my time; this is more informative. | 10 |
fomc | 2,004 | Governor Gramlich. | 4 |
fomc | 2,004 | Just on this point. I think I cannot be accused of going on my merry way on this particular issue. But as a result of the discussion that Karen led last meeting, I'm actually more pessimistic about the demand switching--I believe that's what it's called in the trade--than I was going into that discussion. Now, the firs... | 96 |
fomc | 2,004 | I think it will take an Immaculate Conception. | 12 |
fomc | 2,004 | Right. That's an obvious problem. But the other problem is that we have to get more demand stimulation in the rest of the world. And as Karen just mentioned, the zero-bound issue really gets in the way of that. We talked a little last week about fiscal expansion, and that possibility is always there, but I think demand... | 137 |
fomc | 2,004 | It's extremely hard. But I would say that we are in the best position, with the best resources, to think about it. The probability is that in the end we will come up with nothing worthwhile. But unless we keep thinking about it, I don't think we can do our own job on American monetary policy. | 63 |
fomc | 2,004 | Karen, am I correct in remembering that one of the things your June paper showed is how little an ambitious fiscal consolidation plan buys us in terms of an improvement in the external position? | 36 |
fomc | 2,004 | That is the case in our model. However, I've been, if anything, a bit skeptical about that. But when you reduce any component--exogenous government spending, exogenous investment, a change in the saving rate--you create an opening in the demand-supply balance that is then going to be filled by something, and you want i... | 387 |
fomc | 2,004 | That's an important insight about the nature of the adjustment process. The fact that you cannot forecast exchange rates is telling you something good about the flexibility of the adjustment process, which in itself is a useful insight in terms of knowing what to do analytically and from a policy point of view. | 57 |
fomc | 2,004 | I could tell stories in which that flexibility would all work in the right direction, but I could imagine at least some factors that could go the other way, in the sense that every time the world seems to be going through a period of uncertainty and unsettledness--and a pronounced external adjustment might be such a pe... | 91 |
fomc | 2,004 | President Hoenig. | 4 |
fomc | 2,004 | Just to your point on the exchange rate and why we may need to think about this. It strikes me that, because of external demand and our own situation, we have a more accommodative policy than we normally might because of trying to keep domestic demand up, and the result is that it also keeps our demand for imports very... | 240 |
fomc | 2,004 | But I would just reiterate what Governor Gramlich said a minute ago. If all that happens is that we decide that we're going to use monetary policy to limit U.S. domestic demand, that by itself is not going to be sufficient to produce a good result. | 53 |
fomc | 2,004 | That's why I'm saying, with regard to the Chairman's point, that we may have to look at the exchange rate side or at least think about it. I believe it is perhaps becoming more critical that we do so. | 44 |
fomc | 2,004 | Our dialogue with the staff regarding the economic outlook was a little lengthier than usual, but I think it was a very important discussion. It does impose some time constraints on us going forward, however; so I would request that we try to keep our comments slightly less lengthy--unless, obviously, one has important... | 84 |
fomc | 2,004 | Thank you, Mr. Chairman. Maybe I should speak faster! In this round, the reports from our Seventh District contacts were unusually varied. Many were quite upbeat; others were reminiscent of last year, when uncertainty over the strength of the expansion caused firms to delay investment and hiring. Hence, while I think w... | 732 |
fomc | 2,004 | President Poole. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. It's hard to remember an intermeeting period when less happened--where economic developments were more predictable and more stable--than this one. So I want to concentrate on a few pieces of information that I picked up during this period. My Wal-Mart contact focused on the weak August sales in... | 384 |
fomc | 2,004 | President McTeer. | 5 |
fomc | 2,004 | The economy in the Eleventh District continues to expand at a modest, or maybe even a measured, pace. At our Board of Directors meeting a little over a week ago, one of our directors summarized it best by saying that the economy is going nicely--not great, but nicely. Her theme was echoed by many other directors and by... | 1,116 |
fomc | 2,004 | President Minehan. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. The New England economy is in a growth mode, but the pace of that growth is a bit subdued. Employment levels for the region as a whole are now above those of a year ago. It's the first time in the last two or three years that that has been the case. Most industries and states have added jobs ov... | 1,355 |
fomc | 2,004 | President Pianalto. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. The tone of the reports that I'm getting from my business contacts in the Fourth District is positive, but it's hardly reminiscent of the reports of robust growth that I was hearing earlier this year. Still, both order books and profits are reported to be fairly strong. Business leaders across ... | 475 |
fomc | 2,004 | President Lacker. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Economic growth in the Fifth District softened further in recent weeks, but we don't see any indications that the expansion is off track. Manufacturing shipments and orders continue to expand, although manufacturing employment appears to be flat or declining in our District. Retail activity in ... | 618 |
fomc | 2,004 | President Stern. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. I'm going to take your admonition seriously and say about the District economy that it continues to track the national economy quite closely, as it has throughout this recovery. I'm tempted to let it go at that, except there was a development yesterday that went largely unnoticed and is a cause... | 608 |
fomc | 2,004 | I gather your bottom line is to recommend to those of us who root for the Baltimore Orioles that we move to St. Paul! [Laughter] | 30 |
fomc | 2,004 | I'm not sure. That move may be necessary but not sufficient. [Laughter] | 17 |
fomc | 2,004 | President Santomero. | 5 |
fomc | 2,004 | Thank you, Mr. Chairman. Economic activity in the Third District continues to expand. Our region did not experience the June lull seen in other parts of the country, but in the last month we've seen some easing in the pace of growth--perhaps a delayed lull rather than a new trend. Manufacturing is a case in point; our ... | 1,006 |
fomc | 2,004 | Shall we break for coffee? | 7 |
fomc | 2,004 | President Yellen. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Since our last meeting, economic activity in the Twelfth District has continued to expand at a solid pace but more slowly than earlier in the year. In most of the District, housing markets remain vigorous, but there have been scattered signs of cooling in some areas. High volumes of internation... | 785 |
fomc | 2,004 | Vice Chair. | 3 |
fomc | 2,004 | With the exception of the deterioration in the external imbalance, our view of the outlook has not changed significantly since the last meeting. The inflation news seems better. The growth news seems somewhat reassuring but not exciting. There do not appear to us to be any compelling signs at this stage of a deeper and... | 969 |
fomc | 2,004 | President Hoenig. | 4 |
fomc | 2,004 | Mr. Chairman, on the national outlook, our view is similar to the Greenbook's in that we think the expansion has regained some of its traction and will continue as we move forward. Discussions with business contacts throughout our District tend to support this notion as well. For example, most retailers that we've cont... | 414 |
fomc | 2,004 | President Guynn. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. Like Bill Poole, in searching for words that describe developments since our last meeting I kept coming back to "ho-hum." We've had some mixed readings, as is almost always the case, but no really big positive or negative surprises. And maybe, just maybe, we should allow ourselves to be pleased... | 881 |
fomc | 2,004 | Governor Kohn. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. I agree with what seems to be the general assessment around the room that the data since our last meeting have confirmed our expectation that the soft spot in the economy wasn't that soft or prolonged and that the economy is on a fairly reasonable track. But I think we all have noted that recen... | 923 |
fomc | 2,004 | Governor Gramlich. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. The news that we have to deal with for this meeting relates to the mysterious soft spot that is affecting or trapping the economy. We've had soft spots before, blamed variously on the hangovers from the 1990s, the Iraq War, Enron, and Sarbanes-Oxley. Let's face it, none of these is a credible e... | 924 |
fomc | 2,004 | Governor Bernanke. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. In reviewing developments so far in 2004, it's useful to characterize the economy as having faced a medium-sized aggregate supply shock during the first half of this year. This composite shock comprised various effects associated with the decline in the dollar, the increase in broad indexes of ... | 622 |
fomc | 2,004 | Governor Olson. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. I've again had some discussions with contacts in the banking sector in preparation for this meeting, but they tend to reflect the comments that we've heard around the room, particularly Governor Bernanke's observation that the economy's growth is solid but less vigorous than expected. Certainly... | 660 |
fomc | 2,004 | Governor Ferguson. | 3 |
fomc | 2,004 | Thank you, Mr. Chairman. As others have indicated, the U.S. economy appears to be poised to pick up gradually from the soft patch that afflicted it over the late spring and early summer but, as others have also said, perhaps more gradually than we had thought at the last meeting or earlier this year. In response to tha... | 1,803 |
fomc | 2,004 | Governor Bies. | 4 |
fomc | 2,004 | Thank you, Mr. Chairman. The economic indicators, as others have said, have been variable in the last few months. But on net they show continued expansion, though at a slower pace than in the second half of last year and the beginning of this year. And as Governor Ferguson just mentioned, recent surveys show that busin... | 667 |
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