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fomc
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Could I ask Karen a question?
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Sure, by all means.
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Karen, I have a question on whether we're seeing a change in emerging Asia in exchange rate policies and practices. I'm curious about whether you think there's a common factor behind it in the following sense: Do we see across these countries a significant change in underlying inflation that has caused them to decide t...
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Well, as I will repeat in just a minute, I'm afraid, emerging Asia actually is faring comparatively less well than the other regions of the world at the moment on two scores: higher oil prices and a perception that at least for a time there's a bit of a pause in the strength of the high-tech sector. And these countries...
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Further questions for Dino or Vincent?
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Mr. Chairman, do we need to move approval of the domestic operations?
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Yes, let's first move approval of the Desk's domestic operations. Would somebody like to do so?
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Yes. I so move.
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Without objection, they are approved. Now, we've had three comments on the memo that was circulated and that Dino has discussed. Unless I hear significant negatives, I will assume that those three "votes" so to speak capture the consensus of the group. So if any you would disagree with the recommendation of Dino and Vi...
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Other than good job?
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I guess you win on both counts. We will move on then to David Stockton and Karen Johnson.
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Thank you, Mr. Chairman. I suspect that for many current and former New Englanders, the stirring victory of the Boston Red Sox last month gave hope to other long-deferred dreams. In my case, I mused that if the Red Sox could come from behind to beat the Yankees and then sweep the World Series, wasn't it possible for th...
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Over the intermeeting period, news about foreign economic developments has generally been somewhat disappointing, and we have edged down our outlook for real GDP growth abroad in response. The downward revision is largest for the third quarter, 0.4 percentage point, as growth appears to have been below our expectations...
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Questions for our colleagues? President Poole.
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Karen, there are two themes in your discussion that I'd like you to comment on a bit more to try to reconcile them. On the one hand, you say that the increase in energy prices in the last year to year and a half has been driven primarily by increases in worldwide demand. Then on the other hand, you say that the price i...
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I guess we're learning as we go along the consequences of having global demand push on resource limitations the way it has been. And we are making adjustments of a tenth here and a tenth there. So, it's not as if analytically my demand curves are well enough defined that I can even tell the difference between moving al...
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Thank you.
3
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President Moskow.
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I had a question on the auto outlook. The people that we talk to in the industry are rather conservative about the outlook for next year. They're expecting relatively flat sales. Now, they're not always right, of course. But the Greenbook has sales going up 4 percent next year to a record level and then going up anothe...
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Well, our projection is certainly above those forecasts, as you point out. Certainly one feature of our stronger outlook for motor vehicles is that we have lower interest rates--and noticeably lower interest rates--than are currently built into market expectations. So the financing environment that we think is going to...
213
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Remember, that a flat forecast--because scrappage is rising--implies a significant slowdown in the rate of increase in the number of vehicles on the road. That probably has to occur at some point because we're running out of space. But that's a forecast that was more confidently made a decade ago, as the market continu...
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It is a tough forecast to make, and of course, the automakers may also be running out of room to provide incentives or price cuts and still be viable.
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I'm just worried about running out of street space.
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That's another constraint.
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President Santomero.
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I just wondered, David, if you would give us some sense of the sensitivity of the baseline forecast to changes in the budget outlook that we made reference to earlier. What happens if the tax cuts and everything else are made permanent? What is the implication of some of the fiscal actions that people have been bandyin...
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Well, obviously, it could matter considerably. We are anticipating the budget deficit basically to remain at $410 billion or thereabouts in fiscal year 2005 and to edge down only to $390 billion in 2006. If one were concerned that the current political configuration were going to result in less fiscal discipline, or at...
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Vice Chairman.
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David, maybe I misperceived this, but your model seemed to have trouble generating a high inflation outcome. What is it that produces a "high inflation" scenario with almost no material increase in inflation? The difference in the monetary policy assumption that underpins that scenario is not that large. So is there so...
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I certainly welcome your imagination [laughter] if you wish to apply it to this particular problem. My colleague, David Wilcox, who presented some of this material in his chart show presentation in July, might want to jump in here. But it isn't aggregate demand, as you point out, or policy assumptions because inflation...
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President Minehan.
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Two of the questions I had teed up to ask have been asked and answered. Let me just focus on one. The staff continues to have an assumption of less tightening in the fed funds rate than is expected in the markets. I'm not sure if that has changed a lot since the September meeting on either side. You are saying, I think...
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Well, I think the employment report would not change our funds rate forecast very much. One of the things that I tried to highlight in my remarks, though, is that there are a couple of really major pieces of the outlook--such as movements in the exchange value of the dollar and movements in the stock market--where as a...
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Further questions? Karen, I noticed that the unit import price excluding petroleum for the month of October, which was released today, is negative for the first time this year. Do you have any notions as to what that is about?
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I'm afraid you've caught me without an answer. I'm not sure what the elements of that are.
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Could you take a look at that when you have a chance?
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Sure.
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If there are no other questions, who would like to start the Committee discussion? President Moskow.
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Thank you, Mr. Chairman. The Seventh District economy has firmed since our last meeting. Many of our manufacturing contacts outside the auto industry report strong orders and sales as well as a growing backlog. The improvements have been broad-based, with particular strength in heavy equipment. Engine producers cannot ...
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President Poole.
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Thank you, Mr. Chairman. I'll start with the report from my Wal-Mart friend. He began by saying that Wal-Mart sees demand as "really weak"--that's the term he used. August same-store sales showed the lowest growth rate Wal-Mart had seen for some time, and September-October sales were also weak. I think the company has ...
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President Minehan.
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Thank you very much, Mr. Chairman. The Red Sox win certainly helped. [Laughter] There's no question about that. But after allowing for that, I would say that the economy in New England is expanding even independently of the Red Sox. Employment is growing or is at least stable versus a year ago in all six states, and th...
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President Yellen.
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Thank you, Mr. Chairman. The economic situation in the District has changed little since our last meeting. Activity continues to expand solidly but not exuberantly, closely mirroring the nation. Housing markets, with only a few exceptions, remain robust. Consumer spending is solid in both the retail and travel sectors....
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President Lacker.
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Thank you, Mr. Chairman. The Fifth District economy continued to expand in recent weeks. Manufacturing growth continues but seems to be slowing a bit. Our shipments index fell somewhat but remains solidly in positive territory. The new orders index, however, slid toward a neutral reading, and our manufacturing employme...
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President Hoenig.
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Thank you, Mr. Chairman. Let me first talk a little about the region, which has continued to show expansion since our last meeting. Despite some tentativeness on the part of businesses and consumers that I think was tied to the election, we're seeing some rather positive developments. Consumer spending edged up a bit d...
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President Guynn.
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Thank you, Mr. Chairman. All things considered, the national economy continues on what I regard as a very acceptable pace. Real GDP for the past six months has advanced at a rate of more than 4 percent. This is above the average rate of 3.6 percent we experienced during the 1990s expansion and with less volatility than...
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President Santomero.
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Thank you, Mr. Chairman. Economic activity continues to expand at a modest pace in the Third District. This is the sense we get from the discussions we have had lately with our various advisory boards and from the general tone of the data we have been gathering about the District. Manufacturing has held up well and con...
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President Pianalto.
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Thank you, Mr. Chairman. Ohio may have decided the country's presidential election last week, but it doesn't seem to be determining the economy's direction. I'm afraid I'm going to be a bit of an outlier in my report on economic conditions. Ohio was the battleground state, and it may be that businesses and people in Oh...
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President Stern.
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Thank you, Mr. Chairman. Let me start with just a few comments about the District economy. Recent reports on consumer spending have been mixed; we had one relatively strong month of spending on autos and in non-auto retail sales, followed by a much more modest pace of sales in the next month. An area that has picked up...
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Shall we take a coffee break and return in fifteen minutes, please.
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First Vice President Holcomb.
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Thank you. I appreciate the opportunity to represent the Dallas Federal Reserve Bank here today. It has given me the opportunity to have some very high quality meetings with our economists over the three short weeks since Bob McTeer indicated that he was leaving the Bank. First, looking at our District economy, over th...
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I thought there was more horsepower. [Laughter]
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That's as close to a Bob McTeer story as you'll get from me. [Laughter]
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It's better than some of his! [Laughter]
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Actually, higher energy prices have had a positive impact on the oil and gas sectors of our District economy. Earlier this year, oil and gas activity had been expanding very sluggishly in response to the higher energy prices. In the last two months, however, we see growing evidence that this is changing. Exploration an...
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Vice Chair.
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We feel reasonably comfortable about the national outlook. Anecdotal reports continue to convey a sense of tentativeness about the strength of demand growth going forward, but the national numbers have been pretty solid. The surveys seem to us to show some softening in expectations about the pace of expansion in the pe...
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Governor Kohn.
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Thank you, Mr. Chairman. Solid growth, around the rate of the economy's potential, and low inflation seem to have become even more entrenched over recent months. At least so far, accommodative monetary and fiscal policies and firmly anchored inflation expectations have provided a significant counterweight to the advers...
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Governor Bernanke.
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Thank you, Mr. Chairman. Oil prices notwithstanding, the odds that the economy will continue to grow above trend and that core inflation will remain low and stable seem reasonably good. Growth has been solid this year despite the headwinds created by rising energy prices and a widening trade deficit. By the magic of GD...
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Governor Bies.
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Thank you, Mr. Chairman. Today, I wanted to focus my comments on inventory levels and productivity, based on some conversations I've had recently with business folks. For the last several years, I've watched the significant structural changes that have been made in inventory management to lower inventories relative to ...
959
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Governor Gramlich.
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Thank you, Mr. Chairman. A standard forecast today, well represented by the Greenbook baseline, assumes a minimal decline in the dollar and something close to projected current policy for the federal budget. It has the funds rate rising by roughly half as much as is suggested by the fed funds futures market and finds a...
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Governor Olson.
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Thank you, Mr. Chairman. I will briefly continue on the same subject that Governor Gramlich just discussed because I'd like to talk about fiscal policy issues for a moment. I've been encouraged even with the absence of gridlock--or at least to a certain extent the loosening of gridlock--that the President and some of h...
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Governor Ferguson.
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2 Thank you, Mr. Chairman. I'm having some materials handed out here; and while that's happening, let me say that I am in broad agreement with the baseline forecast in the Greenbook. I find it a reasonable basis for making policy judgments at this meeting and going forward. Having said that, however, I think the risks ...
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Mr. Reinhart.
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3 Thank you, Mr. Chairman. Carol Low is handing out some materials I'll be referring to. This was one of those intermeeting periods that served to remind me of the ephemeral nature of my work here. Not long after the Bluebook was distributed, the Bureau of Labor Statistics reported that it found 450,000 new payroll job...
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Thank you. Questions for Vincent? President Minehan.
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I just had a quick question. Have we given some thought to whether by being clearer about what we expect to do in the future we are, in effect, getting information back from the market that is what we told them, as opposed to what the market's own expectations are? Do we know what the market thinks with regard to the n...
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That's the reverse of what we used to talk about as "looking in the mirror." That was the issue of whether we were being guided by market signals because, if the market was guided by our signals, then again there was this positive feedback question. Also one worries that market participants are not investing independen...
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Further questions? If not, let me get started. We are seeing what appears to be the first indication in this Committee of an increased variance of opinion which, if you go back over the previous meetings, you will find was virtually nonexistent. The reason that our opinions are only now beginning to spread is that the ...
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Thank you, Mr. Chairman. I agree with your recommendation. I wanted to say, notwithstanding your comments on productivity, with which I don't disagree, that the fact is that the real fed funds rate today is zero. I'd be more inclined to the view that we need to pause if the real fed funds rate were in fact positive--or...
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Maybe we ought to circulate the potential statement so that, if you find that any of the language is inconsistent with your views, you can comment on it. Why don't we do that? It's the one labeled B'. People may misinterpret what is actually being proposed, so let's not leave that to chance. President Minehan.
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Thank you very much. I'm in strong agreement with what you have proposed, Mr. Chairman, both the move of 25 basis points and the selection of the language that does not attempt to signal anything for December. I understand the logic in the Greenbook. We in Boston have the same kind of perspective about the future. So I...
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President Poole.
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Thank you, Mr. Chairman. I support your recommendation both for the increase in the funds rate and the statement. I'd like to offer just a couple of other observations. The reason the communications process is so important is that it's highly desirable that the market and the Federal Reserve read incoming data the same...
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A divergence of both the mean and the aggregate variance. Governor Ferguson.
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Thank you, Mr. Chairman. I agree with your recommendations on both the 25 basis point move today and also language that doesn't hint very much one way or the other about future policy. There are a couple of other things I'd like to add, though. One is that I don't want to forget what exhibit 2 in Vincent's presentation...
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President Yellen.
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Mr. Chairman, I support your recommendation to increase the funds rate 25 basis points, but I am concerned about adopting the proposed statement. When I opened the Bluebook this time, I was actually pleased to see in alternative B what I thought was a well-crafted statement that hinted at a possible pause in a way that...
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Governor Gramlich.
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Thank you, Mr. Chairman. I agree with your recommendation in all parts. I'm madly looking around for the sentence that Janet is referring to, and I can't find it.
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It's the first sentence that relates to alternative B--the very top one.
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Oh, they're putting in a reference to the cumulative increase.
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In other words, by stipulating how much we have done already, it suggests that that may be enough.
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Right. So I'm for B'-- the statement that was passed out. But I agree with some combination of the views expressed by Janet, Cathy, and you that soon we should change this sentence that says, with inflation expected to be low, "the Committee believes that policy accommodation can be removed at a pace that is likely to ...
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President Santomero.
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