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Putting It All Together I would now like to step back and consider the relative contributions to the trade deficit of each of the explanations I have discussed, as shown in figure 6.7 To the extent that the contributions of these shocks are reasonably well measured by the macroeconomic model simulations, the most important message I draw from them is that no single factor constitutes a dominant explanation of the deterioration in the U.S. current account balance. | 2,000 | 1 |
As a consequence of these higher real interest rates, the ratio of net worth to income for the average household is already lower than it was earlier this year. | 2,017 | 1 |
Although the rate of pass-through from the higher prices of energy and other commodities to core consumer price inflation appears to have remained relatively low, the cumulative increases in energy and commodity prices have been large enough that they could account for some of the recent pickup in core inflation. | 2,004 | 1 |
In hindsight, the paths of inflation, real output, stock prices and exchange rates may have seemed preordained, but no such insight existed as we experienced it at the time. | 1,999 | 2 |
I will then turn to three challenges our dynamic economy is posing for policy at present: First, what would the consequences of a sharp rise in the price of oil be for the U.S. economy? | 2,001 | 1 |
At the same time, recent research on the science of monetary policy (as well as the analysis of several historical episodes) has underscored the pitfalls that can result from maintaining a zero or negative inflation rate over time. | 2,022 | 0 |
Inflation had been subdued of late, although the recent increase in crude oil and gasoline prices would push up inflation temporarily. | 2,004 | 2 |
Moreover, the recent relatively low monthly readings on core inflation and modest wage pressures, at least by some measures, suggested that some slack remained in resource utilization. | 2,002 | 0 |
Without the oil shock, policymakers beginning from a period of low interest rates would try to keep the economy on an even growth path as they gradually raised nominal interest rates. | 1,999 | 1 |
The tendency may be natural to allow more flexibility when central banks are focused on inflation maintenance than when they seek inflation reduction. | 2,021 | 0 |
The Federal Reserve then sets its policy to achieve the broad objectives assigned to it, specifically, price stability and full employment. | 2,020 | 1 |
The staff viewed the uncertainty around its December projections for real GDP growth, the unemployment rate, and inflation as similar to the average of the past 20 years. | 1,997 | 2 |
Our Congressional mandate is to achieve full employment and price stability in the United States. | 2,002 | 1 |
We should first recognize that the form of the U.S. government is different than that of most inflation-targeting countries. | 2,003 | 2 |
Demand-pull inflation pressures from emerging-market economies abroad appeared to be continuing, and anecdotal reports from business contacts suggested greater willingness domestically to pass rising costs through to prices. | 2,016 | 1 |
These are exactly the concerns expressed in Tom Sargent’s (2000) book on the rise and fall of U.S. inflation, in which he worries that a misunderstanding of the inflation process might again lead to a high-inflation equilibrium. | 2,003 | 1 |
Nonetheless, participants viewed the housing situation and its potential further effect on employment, income, and wealth as one of the major sources of downside risk to the economic outlook. | 2,019 | 0 |
Market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed. | 2,013 | 0 |
Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. | 2,010 | 1 |
Again, the FOMC has done just that through its commitment to adjust policy as required to keep inflation at bay. | 2,007 | 1 |
However, some areas that were affected by the slowdown in the energy sector experienced house price declines or increases in mortgage delinquency rates. | 2,008 | 0 |
Because his econometric analysis of the available data indicated that money demand was more stable than aggregate demand, Bill formulated a simple rule that adjusted the money growth rate in response to the observed unemployment rate. | 2,003 | 1 |
In April, prices of core goods and services--that is, consumer prices excluding food and energy--were unchanged for a second month. | 2,020 | 2 |
The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. " | 2,004 | 2 |
The Survey of Market Participants conducted by the Federal Reserve Bank of New York indicates a shift in expectations following the release of the new monetary policy framework.17 The median expected rate of unemployment at the time of liftoff moved down from 4.5 percent in the July survey, before the release of the framework, to 4.0 percent in the September and subsequent surveys, following the release of the new framework. | 2,006 | 2 |
Although core inflation and the 12-month trimmed mean PCE inflation rate calculated by the Federal Reserve Bank of Dallas remained a little below 2 percent, many participants anticipated that high levels of resource utilization and stable inflation expectations would keep overall inflation near 2 percent over the medium term. | 2,017 | 2 |
The Role of Government Policy You will have noted that I have not mentioned the role of government policy in creating a higher rate of trend productivity growth. | 2,006 | 2 |
But if the economy instead began to overheat, threatening to push inflation to an undesirably high level, the FOMC would have ample scope to respond through tighter monetary policy. | 2,000 | 1 |
I think that keeping interest rates low is still appropriate for our economy. | 2,015 | 0 |
However, we also believe now is a good time to step back and assess whether, and in what possible ways, we can refine our strategy, tools, and communication practices to achieve and maintain our goals as consistently and robustly as possible.2 With the U.S. economy operating at or close to maximum employment and price stability, now is an especially opportune time to conduct this review. | 2,006 | 2 |
But monetary policy has little ability to affect inflation this year. | 1,998 | 2 |
” The vote encompassed approval of the text below for inclusion in the statement to be released at 2:15 p. m. : “In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. | 2,013 | 1 |
Because good forecasts are so crucial to good monetary policy, I hope and expect to see a great deal more work exploring the robustness of alternative forecasting methods. | 2,003 | 2 |
On balance, core consumer price inflation was projected to remain subdued and quite possibly edge lower. | 2,005 | 0 |
An anticipated sharp slowdown in the pace of inventory accumulation also would damp domestic production as the growth of stocks was brought into balance with the expected more moderate trajectory of final sales. | 2,017 | 2 |
And so you’re seeing prices are moving back up off their lows there. | 2,020 | 1 |
With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. | 2,003 | 1 |
Particularly in light of persistent low readings on inflation and from indicators of inflation expectations along with the risks to the U. S. outlook associated with global economic developments, he noted that a policy rate reduction at the current meeting would help re-center inflation and inflation expectations at levels consistent with the Committee's symmetric 2 percent inflation objective and simultaneously provide some insurance against unexpected developments that could slow U. S. economic growth. | 2,001 | 0 |
Committee Policy Action Committee members saw the information received over the intermeeting period as suggesting that economic activity was expanding at a moderate pace. | 2,022 | 1 |
Recently, however, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced. | 2,004 | 0 |
To be clear, when I say "risk premium" I mean the additional compensation required by investors for holding a risky security--that is, one with uncertain returns--above the compensation that would be demanded by risk-neutral investors who care only about expected returns. | 2,022 | 2 |
By the way, we’re also not at maximum employment, as I mentioned. | 2,017 | 0 |
Although your papers concentrate on the equity premium, I would like to take a few minutes today to broaden the discussion to encompass risk premiums in other markets and to highlight the connections between risk premiums and monetary policy. | 1,997 | 2 |
The faster pace of real GDP growth was expected to be supported by an easing in the restraint from changes in fiscal policy, increases in consumer and business confidence, further improvements in credit availability and financial conditions, and a pickup in the rate of foreign economic growth. | 2,021 | 1 |
These participants cited, for example, the still-elevated levels of long-term unemployment and workers employed part time for economic reasons as well as low labor force participation. | 2,002 | 0 |
Staff Review of the Financial Situation The decision by the FOMC to keep the target range for the federal funds rate unchanged at the December meeting and its retention of the "extended period" language in the statement were widely anticipated by market participants and elicited little price response. | 2,001 | 2 |
They generally judged that risks to the growth outlook, including strains in global financial markets, were significant and tilted to the downside; moreover, slow growth left the recovery more vulnerable to negative shocks. | 1,996 | 0 |
The risks to the forecast for real GDP growth and inflation were seen as tilted to the downside, reflecting recent financial developments and concerns about the foreign economic outlook, as well as the staff's assessment that neither monetary policy nor fiscal policy appeared well positioned to help the economy withstand adverse shocks. | 2,019 | 0 |
Last year was the fifth consecutive year that inflation, measured by the chain GDP price index, was 2.6% or lower and the 5-year compound annual inflation rate is now 2.5%, the lowest since 1967. | 1,998 | 0 |
Conclusion To sum up, none of us, obviously, can see the future, and instead we shall have to monitor incoming data closely for evidence of any shifts in recent productivity trends. | 2,007 | 2 |
That's particularly important, because the lags in the effect of policy on economic activity and prices mean that policy decisions are necessarily based on a view of the likely path for the economy over several years, relative to the Federal Reserve's legislated objectives of maximum employment and stable prices. | 2,005 | 2 |
The staff forecast for total PCE price inflation in 2018 was revised up slightly, mainly because of a faster-than-expected increase in consumer energy prices in the second half. | 2,019 | 1 |
Estimates by the staff of the Federal Reserve indicate that about 40 percent of the growth in outstanding home mortgage debt during the past five years originated as financing the extraction of home equity. | 1,997 | 1 |
The producer price index for core intermediate materials dropped for a fifth month in February, reflecting, in part, weaker global demand and steep declines in the prices of a wide variety of energy-intensive goods, such as chemicals and plastics. | 2,012 | 0 |
Actual or realized saving depends on the equilibrium values of the real interest rate and other economic variables. | 2,001 | 2 |
The price of a ton of cold rolled steel sheet, or a linear yard of cotton broad-woven fabrics, could be reasonably compared over a period of years. | 2,022 | 2 |
In part, the high inflation reflects supply chain disruptions associated with the economic effects of the pandemic and efforts made to contain it. | 2,006 | 1 |
Crude oil prices continued to rise, reaching record levels in nominal terms over the intermeeting period. | 2,016 | 1 |
That is, it was thought that by accepting a modest increase in the inflation rate, policy could achieve a permanently lower rate of unemployment. | 2,002 | 0 |
These indicators suggested that the financial system was fairly resilient, as did the absence of a significant increase in funding stresses or margin calls earlier this year when prices of risky assets fell and volatility rose sharply. | 2,020 | 2 |
There are a variety of versions of this basic approach, depending on measures of utilization and inflation rates and depending on whether the adjustment is made in response to past and current movements in utilization and inflation rates or in response to forecasts of these variables. | 2,004 | 2 |
For asset purchases, the Committee declared that tapering would wait "until substantial further progress has been made toward the Committee's maximum employment and price stability goals. | 2,000 | 0 |
Martin Baily and Robert Lawrence (2004) present a much more thorough analysis of this issue and come to a similar conclusion.4 To investigate further the relationship between restructuring and labor productivity, we compared the performance of industry employment to the performance of industry productivity for the period from 2000 to 2002 (chart 5). | 1,999 | 2 |
We want to see lower unemployment. | 2,019 | 0 |
If independence is also defined in terms of assuring the ability and commitment of the central bank to achieve price stability, this commitment can be protected by an explicit price stability mandate from the government. | 2,001 | 1 |
In the household sector, the ongoing deceleration in house prices further restrained the growth of home mortgage debt. | 2,010 | 0 |
Future policy adjustments would depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. | 2,016 | 2 |
I will then discuss the prospects for adjusting monetary policy in the manner needed to sustain a strong job market while maintaining low and stable inflation. | 2,001 | 0 |
The real federal funds rate probably was not greatly out of line with its appropriate level, and the rise in longer-term interest rates and the exchange rate meant that financial conditions were now exerting more restraint than earlier this year. | 2,011 | 1 |
The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. | 1,998 | 2 |
Nonetheless, with the unemployment rate anticipated to increase somewhat during the remainder of 2009 and to decline only gradually in 2010, the staff still expected core PCE inflation to slow substantially over the forecast period; the very low readings on hourly compensation lately suggested that such a process might already be in train. | 1,996 | 0 |
Critical though this issue is, it does not by itself capture the importance of productivity. | 2,020 | 2 |
A commonly used analogy takes the U.S. economy to be an automobile, the FOMC to be the driver, and monetary policy actions to be taps on the accelerator or brake. | 1,997 | 2 |
With inventories lower, firms were beginning to raise production to meet at least a portion of increased demand, and this adjustment was expected to make an important contribution to economic recovery in the fourth quarter of the year and, to a lesser extent, in 2010 as well. | 1,999 | 2 |
Members agreed that the statement should continue to convey that inflation risks remained of greatest concern and that additional policy firming was possible. | 2,003 | 1 |
Rapid responses by businesses to changes in free-market prices have muted much of the tendency for unsold goods to back up, or unmet needs to produce shortages. | 2,005 | 2 |
The second is intermediate-term need for reserve expansion and contraction, arising, for example, from seasonal changes in the demand for currency and reserves. | 2,020 | 2 |
Palmer was a professor at Wharton, a fellow of the American Statistical Association, a worldwide expert on manpower and labor mobility, and a consultant with the Office of Statistical Standards.5 She argued that "a single figure of unemployment, regardless of how it is defined or derived, is inadequate as a basis for selection among [policy] programs. | 2,007 | 2 |
On the other hand, including a reference risked the possibility of suggesting greater concern on the part of the Committee than was actually the case, perhaps leading to the misimpression that monetary policy was likely to respond to increases in volatility. | 1,998 | 2 |
As its name implies, this rule does not prescribe a particular level of the federal funds rate at a given time but rather how the existing rate should change from quarter to quarter based on two gaps--the difference between inflation and its desired level as well as the difference between the unemployment rate and its longer-run normal level.20 In contrast to the other two rules, the change rule does not take a stand on the value of the longer-run neutral level of the real federal funds rate, thus avoiding a potential source of error. | 2,022 | 2 |
Members saw the persistence of a relatively vigorous expansion in overall economic activity as a likely prospect in the context of continuing stimulus from fiscal and monetary policies, accommodative financial conditions, growing business optimism, favorable consumer sentiment, and robust increases in productivity. | 1,997 | 0 |
The members also agreed that the risks remained weighted mainly in the direction of greater inflation pressures and that further tightening actions might be necessary to bring about financial conditions that were sufficiently firm to contain upward pressures on labor costs and prices. | 2,006 | 1 |
To this end, the new statement conveys the Committee's judgment that, in order to anchor expectations at the 2 percent level consistent with price stability, it "seeks to achieve inflation that averages 2 percent over time," and—in the same sentence—that therefore "following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time." | 2,007 | 0 |
And I need not remind you that the low inflation we now have was dearly purchased in the late 1970s and early 1980s with the highest interest rates since the Civil War and the highest unemployment rate since the Depression. | 1,998 | 0 |
Accordingly, much stronger growth in such investment could occur, with concomitant effects on incomes and the growth of overall spending. | 2,022 | 1 |
It will take time for the cumulative effect of tighter monetary policy to work through the economy broadly and to bring inflation down. | 2,000 | 1 |
Vice Chair Richard H. Clarida At the 2020 U.S. Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York, New York Share Thank you to the conference organizers for inviting me here to discuss what former Chair Bernanke has famously referred to as a "hall of mirrors" problem: a situation in which a central bank's reaction function and financial market prices interact in economically suboptimal and potentially destabilizing ways.1 In my remarks today, I will lay out the way I think about the interplay between financial markets and monetary policy, with a focus on how I myself seek to integrate noisy but often correlated signals about the economy that I glean from models, surveys, and financial markets.2 Three Observations I begin with three unobjectionable observations. | 2,019 | 2 |
Indeed, just recently, the National Bureau of Economic Research's Business Cycle Dating Committee determined that the recession that began in March of last year ended in April, making it not only the deepest recession on record, but also the briefest.2 Moreover, with the development and distribution of several remarkably effective vaccines, the monetary and fiscal policies presently in place should continue to support the strong expansion in economic activity that is expected to be realized this year, although, obviously, the rapid spread of the Delta variant among the still considerable fraction of the population that is unvaccinated is clearly a downside risk for the outlook. | 2,005 | 0 |
Several participants expressed the view that a decision regarding the long-run composition of the portfolio would not need to be made for some time, and a couple of participants highlighted the importance of making such a decision in the context of the ongoing review of the Federal Reserve's monetary policy strategies, tools, and communications practices. | 2,017 | 2 |
Pressures on labor resources were likely to ease somewhat as the expansion of economic activity slowed, but inflation was projected to pick up gradually in association with a partial reversal of the decline in energy prices this year. | 1,996 | 1 |
Thus, knowing where productivity growth is headed is, in many respects, equivalent to foreseeing our economic destinies. | 2,003 | 2 |
Higher inflation expectations would in turn lead workers to bargain for commensurate raises in nominal wages to preserve the real value of their earnings. | 2,021 | 1 |
Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2022 through 2024 and over the longer run based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. | 2,012 | 2 |
Productivity and TechnologyLet me now turn from the overall economic outlook to productivity and technology developments. | 2,005 | 2 |
Moreover, theory and intuition tell us that monetary credibility will be greatest when the central bank does what it is supposed to do: offset economic shocks to keep price pressures from building and thereby keep inflation itself low and stable. | 2,006 | 1 |
This was a key reason why currency crises of the past few decades were so costly: Sharp depreciations of the exchange rate boosted the domestic-currency value of foreign debt and wreaked havoc with government finances and corporate balance sheets. | 2,004 | 2 |
The longer-run projections represent each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. | 2,010 | 2 |
The release this year and last of mortgage price data gathered under the Home Mortgage Disclosure Act (HMDA) has highlighted a different, but potentially related, concern about access to credit on equal terms. | 2,007 | 2 |
I shall endeavor to place this most unusual phenomenon in the context of the broader changes in our economy and, hopefully, explain why the value of education, especially to enhance advanced skills, is so vital to the future growth of our economy. | 2,022 | 2 |
Moreover, a change in the ranges might be misinterpreted as a signal of greater reliance on the broad monetary aggregates in the formulation and conduct of monetary policy. | 2,018 | 2 |
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