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Financial markets are the channel through which our policy affects the economy, and asset prices contain valuable information about investors' expectations for the course of policy, economic activity, and inflation, as well as about the risks around those expectations. | 2,005 | 2 |
If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. | 2,015 | 0 |
And the equity market itself has been the subject of analysis as we attempt to assess the implications for financial and economic stability of the extraordinary rise in equity prices--a rise based apparently on continuing upward revisions in estimates of our corporations' already robust long-term earning prospects. | 2,000 | 1 |
An easing of supply constraints was expected to support continued gains in economic activity and employment as well as a reduction in inflation. | 2,002 | 2 |
The effects of the saving outflow may thus have been felt disproportionately on U.S. interest rates and the dollar. | 2,005 | 0 |
Moreover, if, as some members thought likely, productivity growth slowed as employment picked up, the result could be reductions in slack accompanied by higher unit labor costs and associated pressures on prices. | 2,019 | 1 |
As technical change increases demand for skilled relative to unskilled labor, the unskilled workers must acquire new skills, find new jobs at lower relative wages, or become unemployed. | 2,022 | 0 |
First, tightening will in all likelihood occur in the context of a more firmly established economic recovery in the United States so that any adverse effects on EME financial conditions should be buffered by the beneficial effects of higher external demand. | 1,999 | 1 |
However, given the difficulty in distinguishing between changes in asset prices dominated by fundamental forces and those driven by non-fundamental forces, policymakers should not target asset prices or try to guide them to the policymakers' estimate of fundamental value. | 2,005 | 2 |
The period of sub-par expansion was expected to foster an appreciable easing of pressures on resources and some moderation in core price inflation. | 2,013 | 0 |
How long the favorable factors that continued to stimulate substantial growth in consumer expenditures would persist was uncertain, notably with regard to the outlook for stock market prices and their effects on consumer resources and willingness to spend. | 1,996 | 2 |
This aggregate growth-accounting framework forms the economic underpinning of key comprehensive productivity statistics produced by the Bureau of Labor Statistics. | 2,021 | 2 |
Treasury yields rose sharply on its release as market participants traced out the report's presumed implications for monetary policy. | 1,997 | 1 |
Recent data on core consumer prices led the staff to mark down slightly its forecast for core PCE inflation. | 2,008 | 0 |
A fifth factor is supply bottlenecks that manufacturers and importers are currently experiencing; supply chain constraints are boosting prices, particularly for goods—less so for services. | 1,997 | 1 |
In a virtuous circle, stable inflation expectations help the central bank to keep inflation low even as it retains substantial freedom to respond to disturbances to the broader economy. | 2,021 | 1 |
It is now generally recognized that price stability is a prerequisite for the efficient allocation of resources in our economy and, indeed, for fulfilling our ultimate mandate to promote maximum sustainable employment over time. | 1,999 | 1 |
M2 growth dropped in the second quarter and remained modest in July, consistent with moderating growth of nominal income and rising opportunity cost. | 2,008 | 1 |
That is, monetary policy responds to changes in fiscal policy in much the same way that it responds to other influences on the economy, such as equity prices, exchange rates, or the demand for U.S. exports due to changed growth prospects abroad. | 2,007 | 2 |
Geopolitical uncertainties, notably those relating to developments in Iraq, frequently were cited by business contacts as a major reason for caution, but other factors inhibiting capital expenditures evidently included excess capacity and limited prospects for profits because of increased energy, insurance, pension, and other costs and a concomitant inability to raise selling prices. | 2,010 | 1 |
On the other hand, the fact that productivity growth has remained solid in recent years increases confidence that a larger fraction of those productivity gains reflects longer-term developments and a smaller fraction reflects cyclical factors. | 2,017 | 0 |
If the prices are wrong -- built on the base on an incorrect view of the economy or Federal Reserve intentions -- we will prove them wrong and provide an anchor for the market to adjust to. | 2,006 | 2 |
The changes we made last year to our Statement on Longer-Run Goals and Monetary Policy Strategy are well suited to address today's challenges. | 2,005 | 2 |
The unemployment rate was unchanged over the period between the April and June meetings, but payroll employment posted solid gains, and, on balance, a range of labor market indicators suggested that underutilization of labor resources diminished somewhat. | 2,012 | 1 |
The December employment report showed that job growth had slowed appreciably, and other indicators also pointed to emerging weakness in the labor market in the intermeeting period. | 2,004 | 0 |
The dominant force of late appears to have been a significant increase in the structural rate of productivity growth. | 2,004 | 0 |
Using more-conventional specifications of Phillips curves, the research at the Federal Reserve Board (Ihrig and others, 2007) and the OECD (Pain, Koske, and Sollie, 2006), as well as Ball (2006), finds that foreign output gaps are not important determinants of domestic inflation. | 2,005 | 2 |
However, the increase in real GDP was projected to be sufficient to reduce slack in the labor market only slowly, and the unemployment rate was expected to remain elevated at the end of 2012. | 1,998 | 2 |
The major reason for these significant differences in spending out of household wealth is doubtless that, while home prices do on occasion decline, large declines are rare; the general experience of homeowners is a modest, but persistent, rise in home values that is perceived to be largely permanent. | 2,005 | 1 |
He thought future developments were equally likely to warrant an action in either direction, and he did not think the Committee should take a step that probably would cause expectations of further easing to become embedded in market interest rates. | 2,019 | 2 |
Because current inflation is affected by inflation expectations, the smaller increase in expected inflation will lead to a smaller increase in actual inflation as well. | 2,007 | 1 |
I believe the current move can be justified in a forward-looking variant of the Taylor Rule, where today's policy depends on the forecast of future output gaps and inflation. | 2,003 | 2 |
In the past few years, the effect on the dollar of increased expectations about divergence between U.S. and foreign interest rates has been especially strong.9 The nearly 20 percent increase in the dollar over 2014 and 2015 coincided with falling real exports and import prices in the United States. | 2,021 | 0 |
Indeed, few long-term inflation forecasts in any country currently exceed 5 percent, although Venezuela provides one counterexample, with a long-term inflation forecast now of 15 percent. | 2,006 | 2 |
As you may know, the interest rate that we target is the federal funds rate, the rate banks charge each other for overnight loans. | 2,004 | 2 |
Although readings on core inflation had improved modestly since the spring, nearly all participants viewed core inflation as uncomfortably high and stressed the importance of further moderation. | 2,000 | 1 |
The cutback in residential construction has directly reduced the annual rate of U.S. economic growth about 3/4 percentage point on average over the past year and a half. | 2,004 | 0 |
Flexible inflation averaging could bring some of the benefits of a formal average inflation targeting rule, but it would be simpler to communicate. | 1,996 | 2 |
We all saw the remarkable price increases and shortages in the used car market. | 2,019 | 1 |
Because economic downturns typically result in even greater uncertainty about asset values, such episodes may involve an adverse feedback loop whereby financial disruptions cause investment and consumer spending to decline, which, in turn, causes economic activity to contract. | 2,003 | 0 |
Millions of new jobs have been created in the last few years; and unemployment, now at 4.3 percent, has been at or below 5 percent for over two years. | 2,017 | 1 |
Many members concluded that because there did not seem to be any urgency to tighten current policy for domestic reasons, given the likelihood that inflation would remain subdued for a while, important weight should be given to potential reactions abroad. | 2,013 | 0 |
A higher rate of technical change that raises the productivity and hence the profitability of capital should elevate the value of equities. | 1,998 | 1 |
Net exports subtracted more than 1/2 percentage point from GDP growth in both 2014 and 2015, while falling non-oil import prices likely subtracted 1/4 percentage point from the annual rate of core inflation.10 Finally, the trajectory of federal government debt relative to GDP and views regarding the debt's sustainability can also influence the effects of fiscal policy. | 2,021 | 0 |
Monetary Policy But it is monetary policy--and the Fed's principal monetary lever, the federal funds rate, which is the interest rate on overnight loans of reserves between depository institutions--that earns the Federal Reserve all that ink and airtime. | 2,020 | 2 |
"6 In the second half of the 1990s, this measurement puzzle was at the heart of monetary policymaking.7 Chairman Alan Greenspan famously argued that the United States was experiencing the dawn of a new economy, and that potential and actual output were likely understated in official statistics. | 2,007 | 2 |
The reduced-form price equations we so often use for inflation prediction bypass direct contact with labor compensation issues. | 2,007 | 2 |
The first is what to do about supply shocks, like large increases in oil prices, which tend to increase both inflation and unemployment. | 2,004 | 1 |
These participants preferred to wait until there was greater assurance that the transmission mechanism of monetary policy via financial markets and the supply of credit to households and businesses was working effectively. | 2,002 | 2 |
What does this suggest about monetary policy strategy going forward? | 2,022 | 2 |
How would that development affect the economy and monetary policy? | 2,007 | 2 |
Indeed, economic growth abroad was widely viewed as dependent to a significant extent on the performance of the U. S. economy. | 2,022 | 2 |
More fundamentally, however, the members believed that current growth in aggregate demand, should it persist, would continue to exceed the expansion of potential output and, by putting added pressure on already tight labor markets, would at some point foster inflationary imbalances that would undermine the economic expansion. | 2,018 | 1 |
The significant decreases that had occurred in the prices of fuel oil and gasoline were a positive factor that would continue to bolster household spending for a while. | 1,997 | 2 |
Fischer, Sahay, and Vegh (2002) present evidence of a strong correlation between fiscal deficits and money creation in high-inflation economies. | 1,996 | 2 |
One participant, however, objected that purchases of MBS, when compared to purchases of longer-term Treasury securities, would likely result in higher interest rates for many borrowers in other sectors. | 2,019 | 1 |
Industrial production picked up in response to the advance in final demand and a slowdown in the runoff of excess inventory stocks. | 2,004 | 2 |
What about the effects of a productivity shock on inflation? | 2,022 | 2 |
A number of participants stressed that recently enacted fiscal support would help address some of the hardships faced by these groups and that monetary policy would also help by promoting the economy's return to the Committee's goals of broad-based and inclusive maximum employment and price stability. | 2,003 | 0 |
In the staff forecast prepared for this meeting, the economy was seen as likely to expand at a pace a little above that of its longer-run potential over this year and next, while hiring was expected to firm some more, resulting in a further decrease in the unemployment rate. | 1,996 | 1 |
In that vein, several participants noted that inflation expectations had been sensitive to incoming data and to communications regarding monetary policy over the intermeeting period. | 1,997 | 2 |
Long-term sovereign bond yields declined notably in the advanced economies, in part as foreign central banks announced additional monetary policy easing measures. | 2,019 | 0 |
Higher productivity growth has apparently increased aggregate demand through at least three channels. | 2,021 | 1 |
Several participants reported that business contacts had expressed growing concerns about the increase in their input costs and that there were signs that an increasing number of firms were seeking to pass on these higher costs to their customers in the form of higher prices. | 2,014 | 1 |
This is yet another concerningly high reading, and it set another 40-year record high despite the expectation of many forecasters that inflation had peaked earlier in the year. | 2,020 | 1 |
The staff's outlook for inflation was broadly unchanged. | 2,005 | 2 |
Case studies of individual industries show that, in some cases, the planning for technological modernization has not always been adequate, with the result that some purchases of high-tech equipment and software have not added much to productivity or profits. | 1,997 | 2 |
Under pure monetary targeting, interest rates would fluctuate with shocks in spending. | 2,000 | 2 |
On balance, while the business investment outlook seemed vulnerable to somewhat greater than projected weakness in the short run, the members were persuaded that, against the background of large continuing gains in structural productivity and cost savings from further investment in equipment and software, business firms were likely to accelerate their spending for new capital after a period of adjustment. | 2,001 | 2 |
The staff's forecast for core PCE price inflation this year was revised down a little in response to recent data. | 2,021 | 0 |
Crude oil prices, though volatile, had not risen appreciably in recent months on balance, and a flattening in energy prices was beginning to damp headline inflation. | 2,016 | 2 |
Even so, in the absence of major overhangs in inventories of business equipment and consumer durables, and given favorable conditions in financial markets, members believed that a resumption of moderate, sustainable growth after a relatively brief period of weakness was the most likely outlook for the economy. | 2,004 | 2 |
Output was forecast to expand at a rate a little above the staff's estimate of its potential rate of growth in 2019 through 2021 and then to slow to a pace slightly below potential output growth in 2022. | 2,019 | 2 |
And the growth of telegraphy enabled railroads to better coordinate the movement of trains over a wider area. | 2,000 | 2 |
Now suppose that, in an economy experiencing a stable deflation, the central bank leadership announces a fixed inflation target but then makes no progress toward that target during a given period. | 2,005 | 2 |
Participants noted that the improved performance of investment suggested that the expansion was becoming more balanced, with strengthening business spending potentially offsetting some moderation in the growth of household spending from the elevated rates of recent years. | 2,011 | 2 |
With regard to the federal sector, spending related to last year’s hurricanes appeared likely to abate, and federal expenditures overall would probably be providing less impetus to aggregate demand going forward. | 2,015 | 0 |
* * * As the transcripts of FOMC meetings attest, making monetary policy is an especially humbling activity. | 1,999 | 2 |
Holiday shopping reportedly was relatively solid, and, reflecting the improvement in the housing market, demand for home furnishings and construction materials was up. | 2,019 | 1 |
For the present, however, inflation remained subdued, and it was likely to remain relatively low for some time in light of the weakness in commodity and other import prices and the tendency for low current inflation to hold down expected price increases. | 2,007 | 0 |
Moreover, broad equity price indexes had declined and borrowing costs for nonfinancial firms had increased, including a recent rise in corporate bond yields across most risk categories. | 2,003 | 1 |
In addition, contacts reported that softer export sales, weaker economic activity abroad, and elevated levels of uncertainty regarding the global outlook were weighing on business sentiment and leading firms to reassess plans for investment spending. | 2,015 | 0 |
The staff still expected that the pace of economic activity through 2011 would be sufficient to reduce the existing margins of economic slack, although the anticipated decline in the unemployment rate was somewhat slower than in the previous projection. | 1,997 | 0 |
Inflation had increased somewhat since earlier this year but remained below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. | 2,016 | 0 |
Following these swings, inflation was expected to finish the year at just below 2 percent. | 2,002 | 0 |
Some price increases had been noted; however, apart from the energy and health care sectors, price inflation had remained relatively subdued, evidently reflecting the combination of diminished growth in overall demand and strong competitive pressures in most markets. | 2,017 | 2 |
On the more positive side, there were no signs that the pace of productivity gains was currently leveling out and no evidence of rising longer-term inflation expectations. | 2,001 | 2 |
Moreover, to the extent that more-rapid growth of productivity shows through to faster gains in nominal wages, there will be fewer instances in which nominal wages will be pressured to fall. | 2,021 | 2 |
As a case in point, the increase in the transparency of U.S. monetary policy over the past two decades has been quite significant. | 2,017 | 2 |
The recent decline in mortgage rates had sparked some refinancing and purchase activity, but the extent of the longer-term impact of lower rates on housing demand remained uncertain. | 2,011 | 0 |
The ebbing of stimulus from last year's tax cuts also could tend to slow growth in consumer spending. | 2,011 | 0 |
Eventually, financial markets may develop the instruments and associated analytical techniques for unearthing these implicit changes in the price level with some precision. | 1,996 | 2 |
The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. | 2,016 | 0 |
Still, if aggregate demand and potential aggregate supply follow the paths that I outlined earlier, the slack in resource utilization should diminish, unit labor costs should begin to move higher, and the underlying rate of inflation should stabilize. | 2,006 | 2 |
Even after adjusting for the effects of strikes on reported payrolls, the employment report for August showed weak job gains. | 2,004 | 0 |
According to the Taylor Rule, the federal funds rate should adjust over time to changes in utilization rates (the gap between actual and potential output or between the unemployment rate and NAIRU) and to changes in inflation. | 2,004 | 2 |
Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability. " | 2,021 | 2 |
Low readings on overall and core consumer price inflation in recent months, as well as the weakened economic outlook, kept near-term inflation expectations reported in surveys well below their high levels in mid-2008. | 2,008 | 0 |
Looking to the future, however, the members generally agreed that the risks were in the direction of a heightening in inflation pressures despite their belief that growth in overall demand now seemed to have declined to a more sustainable pace and probably would continue to expand for a time at a rate below that of the economy's output potential. | 2,004 | 1 |
Nevertheless, most participants agreed that, although the level of inventories of unsold homes that homebuilders desired was uncertain, the correction of the housing sector was likely to continue to weigh heavily on economic activity through most of this year--somewhat longer than previously expected. | 2,014 | 2 |
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