TextCEsInFinance/fomc-communication

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937	I look forward to my conversation with Steve Liesman and to your questions, but first, please allow me to offer a few remarks on the economic outlook, Federal Reserve monetary policy, and our new monetary policy framework.	2,003	2	neutral
938	We heard anecdotes today in the meeting about firms that might be government contractors that were, you know, not sure about whether the contracts would still be in place come January and making employment decisions based on that.	2,019	2	neutral
939	This aggregate growth-accounting framework forms the economic underpinning of key comprehensive productivity statistics produced by the Bureau of Labor Statistics.	2,021	2	neutral
940	The unemployment rate was likely to remain low going forward, and various participants remarked that there were some indications that further strengthening in overall labor market conditions was possible without creating undesirable pressures on resources.	2,003	2	neutral
941	However, making significant use of this option would bias credit flows in the direction of depository institutions and, if the volume of these loans were large enough, could affect the interest rates on the assets, specifically bank loans held by such institutions.	2,004	2	neutral
942	You know, what you hear out there is that demand—you talk to banks, and they’ll say demand for loans is very, very low right now.	2,014	0	dovish
943	The moderation reflected lower growth in most major expenditure sectors.	2,012	0	dovish
944	As a result, growth of spending on consumer durables was expected to be appreciably below the rapid pace in the first half of last year, and housing demand would increase only a little from its recent level.	2,015	2	neutral
945	if you ask me, is this a significant factor shaping monetary policy now, well, it’s on the list of risks, it’s not a major—it’s not a major factor.	2,015	2	neutral
946	And as reserves reach durably ample levels, we intend to slow the pace of purchases such that our balance sheet grows in line with trend demand for our liabilities.	1,998	1	hawkish
947	During expansions, equity prices tend to rise, although they often decline before a downturn in the economy.	2,017	2	neutral
948	The review of regional economic developments by the Federal Reserve Bank presidents pointed to moderate expansion in economic activity across much of the nation, though growth was described as modest in a few regions and relatively robust in some others.	2,019	2	neutral
949	The household saving rate, which had already risen considerably, would eventually level out and cease to hold back consumption growth.	2,000	2	neutral
950	Core consumer price inflation continued to slow, and inflation expectations remained subdued over the closing months of 2003.	2,000	0	dovish
951	An unexpectedly sharp increase in wages or inflation could tell you that you’re reaching those points.	2,018	1	hawkish
952	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	neutral
953	Participants expected that productivity growth would pick up as firms slowed hiring to a pace more in line with output growth but acknowledged that the improvement might be limited, particularly if business investment spending were to remain soft.	2,008	2	neutral
954	Conversely, fiscal policy expansion in the surplus countries could be used to augment domestic demand, but any such adjustments would need to take account of medium-term goals for fiscal consolidation.	2,020	0	dovish
955	However, in the view of most members, the outlook for both economic activity and price pressures remained very uncertain, and thus the timing and magnitude of future policy actions was quite unclear.	2,014	2	neutral
956	I have downplayed the role of the U.S. federal budget deficit today, and I disagree with the view, sometimes heard, that balancing the federal budget by itself would largely defuse the current account issue.	2,003	2	neutral
957	Those participants saw substantial slack in resource utilization and hence continued to judge that inflation was likely to remain subdued over the medium term as the economy continued to recover.	2,000	0	dovish
958	Pure bubbles--increases in asset prices that are 100 percent air--are, I suspect, rare.	2,000	2	neutral
959	Even as the outlook for real activity has weakened, there have been some important developments on the inflation front.	2,003	1	hawkish
960	Stock options are incorporated, based on gains upon exercising the options, in the productivity and cost measure, but not in the ECI.	2,006	2	neutral
961	With capacity utilization already at high levels, relatively rapid growth in inventory investment, if it were superimposed on stronger-than- projected expansion in final demand, could portend serious pressures on resources and inflationary consequences for the economy.	2,020	1	hawkish
962	We might look to the historical experience with oil price shocks in the 1970sâ€”not a happy story.	2,021	2	neutral
963	But in many countries around the Chair Yellen’s Press Conference FINAL world that are important commodity exporters, the decline we’ve seen in oil prices has had a depressing effect on their growth, their trade with us and other trade partners, and caused problems that have had spillovers to the global economy as well.	2,018	0	dovish
964	Survey and market measures of long-term inflation expectations did not suggest that the earlier higher inflation readings were going to persist.	1,999	2	neutral
965	This is a tangible recent example of the need both to judge how the equilibrium real interest rate that is relevant for policy might have changed from a perceived long-run level and to set policy against the background of such an understanding.	2,003	2	neutral
966	Private nonfarm payroll employment increased appreciably on balance over September and October.	1,996	1	hawkish
967	it does have a bearing on the inflation outlook.	2,021	2	neutral
968	Nonetheless, given a recovery in U. S. domestic demand approximating their current forecasts, growth in imports likely would exceed that of exports by a wide margin over the forecast horizon.	2,014	1	hawkish
969	My fellow governors and I routinely receive from our staff a translation of the term structure of Treasury yields into implied forward rates, volatility inferred from options prices, and paths for expected monetary policy action consistent with futures prices.	2,021	2	neutral
970	So for many, many years, we’ve been far from maximum employment and stable prices, and so the need for accommodative policy has been—has been clear.	2,016	0	dovish
971	The Federal Reserve’s response is guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system.	2,020	1	hawkish
972	While recognizing the value of smoothing, I still feel that in the interest rate targeting regime the Fed now uses, we should at times be ready to change interest rates quite quickly in response to economic conditions.	2,019	2	neutral
973	However, at 7.7 percent, the unemployment rate remains elevated.	2,013	0	dovish
974	Overall, research indicates that trade with developing economies in particular has slowed the rate of growth of import prices faced by industrialized countries, with estimates of the reduction ranging widely from 1/2 to 2 percentage points.	2,007	2	neutral
975	In other cases, it’s pretty clear that inflation has spread more broadly across services.	2,013	1	hawkish
976	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	dovish
977	Lessons from Past Productivity Booms First, many of the technological innovations associated with past productivity booms were general purpose technologies (GPTs) with widespread applicability.	2,005	2	neutral
978	To the extent that these producers are foreign, there should be a corresponding drop in domestic demand.	2,007	0	dovish
980	Also, the Committee will pay close attention to measures of inflation expectations to ensure that those expectations remain well anchored.	2,018	1	hawkish
981	Construction employment posted another large increase, probably owing in part to hurricane-related activity.	2,006	2	neutral
982	However, it is not yet clear how high we will need to raise the federal funds rate and how much time will pass before we begin to see inflation moving back down in a consistent and lasting way.	2,004	1	hawkish
983	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	neutral
984	Inflation is much too high, and I strongly believe that bringing inflation back to our target is a necessary condition for meeting the goals mandated by Congress of price stability and maximum employment on a sustainable basis.	2,005	1	hawkish
985	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	2	neutral
986	multifactor productivity growth fell to a pace of 0.4 percent, the slowest pace of any of the periods shown on the table.	1,998	2	neutral
987	But the cumulative force of recent developments appears likely to yield a slowing in the pace of growth next year.	2,006	0	dovish
988	Long-term unemployment in the current economy is—is the worst—really the worst it’s been in the postwar period.	2,012	0	dovish
989	Clearly, businesses regarded such investments as highly profitable, and they appeared to be leading to gains in productivity that in turn were helping to offset rising compensation and to maintain profit margins in highly competitive markets.	2,022	2	neutral
990	I strongly supported the FOMC's decision last week, and I expect to support additional rate increases until we see significant progress toward bringing inflation down.	2,001	1	hawkish
991	In those Districts in which activity had been adversely affected by the drop in energy prices, drilling activity was either contracting less rapidly or was stabilizing.	2,010	0	dovish
992	Over the same period, demand for auto loans reportedly strengthened further at many banks.	2,012	0	dovish
993	The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.	2,005	0	dovish
994	But the importance of price stability has sometimes been insufficiently appreciated in our central bank's history, and, as Allan Meltzer will soon point out, such episodes have had unfortunate consequences.	2,006	1	hawkish
995	Real GDP was forecast to decline and the unemployment rate to rise, on net, in the first half of this year.	2,008	0	dovish
996	Indeed, I would argue that over the past eight years, the framework served us well and supported the Federal Reserve's efforts after the Global Financial Crisis (GFC) first to achieve and then, for several years, to sustainâ€”until cut short this spring by the COVID-19 pandemicâ€”the operation of the economy at or close to both our statutorily assigned goals of maximum employment and price stability in what became the longest economic expansion in U.S. history.	2,006	1	hawkish
997	Such a directive would imply that any tightening should be implemented promptly if developments were perceived as pointing to rising inflation.	1,999	1	hawkish
998	Domestic demand growth has slumped in many foreign economies because of varying combinations of an increase in saving rates and a decline in investment.	2,017	0	dovish
999	Our current framework for implementing monetary policy is working very well.	2,021	2	neutral
1,000	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	dovish
1,001	Inflation had been subdued of late,	2,004	0	dovish
1,002	But my colleagues and I continue to believe that the factors that are responsible this year for holding inflation down are likely to prove transitory.	2,020	2	neutral
1,003	But low rates are not solely or even primarily a result of the Federal Reserve's accommodative monetary policies; they are rooted in the market's expectations of low inflation and the weakness of the economic recovery, factors weighing on rates not just in the United States but throughout the advanced economies.7 Given low real rates and low inflation, expected nominal returns should be low across all asset classes.	1,998	0	dovish
1,004	Consistent with the optimism driving stock prices, spreads of corporate bond yields over comparable-maturity Treasury yields narrowed markedly across the credit spectrum, most notably for debt securities of the lowest credit quality firms.	1,996	0	dovish
1,005	As we gain experience with the enhanced forecasts, we will continue to evaluate how best to promote stability of both prices and employment.	2,004	1	hawkish
1,006	Shortly after 9 a.m. each morning, the Desk staff and staff members at the Board of Governors confer over the phone to discuss their respective estimates of the day's demand for balances as well as to consider factors that may affect supply.	2,006	2	neutral
1,007	These authors point out (as have many others) that, when nominal interest rates are at or near zero, the central bank can lower the real rate of interest only by creating expectations of inflation on the part of the public.	2,003	2	neutral
1,008	Smoothing through these variations, average monthly job growth appears to have stepped down from last year’s strong pace, but job gains remain well above the pace necessary to provide jobs for new labor force entrants.	2,020	2	neutral
1,009	And I'm pleased to have the opportunity to share with you, the students of South Dakota State University (SDSU), my experience as a member of the Federal Reserve Board of Governors and my outlook for the U.S. economy.1 Today I will speak to you about my outlook for the U.S. economy and what the Federal Reserve has been doing to support economic activity during the COVID-19 pandemic recovery.	1,998	2	neutral
1,010	A variety of indicators, along with anecdotal reports, suggested that employment was expanding at a fairly good pace and labor compensation was rising moderately.	2,003	1	hawkish
1,011	But what if the Fed were actually to propose a soft form of inflation targeting?	2,004	1	hawkish
1,013	Although the unemployment rate is around a 50-year low, wages are rising broadly in line with productivity growth and underlying inflation.	2,004	1	hawkish
1,014	Total U. S. consumer prices, as measured by the PCE price index, increased 1.	1,998	1	hawkish
1,015	But, in the interim, the absence of increasing inflation pressures meant that the Federal Reserve did not need to tighten to bring demand back in line with the potential as soon as it otherwise might have needed to.	2,013	0	dovish
1,016	While these studies allow for differences in the weighting of price indexes across different income groups, they rely on the same elementary price indexes for subcategories of goods and services.	2,017	2	neutral
1,017	The ebbing of stimulus from last year's tax cuts also could tend to slow growth in consumer spending.	2,011	0	dovish
1,018	What does this suggest about monetary policy strategy going forward?	2,022	2	neutral
1,019	Together these structural changes would imply that the economy can now operate at a lower unemployment rate and at a higher growth rate than previously without inflationary consequences.	2,019	0	dovish
1,020	Mr. Kocherlakota dissented because, in his view, the new forward guidance in the fifth paragraph of the statement would weaken the credibility of the Committee's commitment to its inflation goal by failing to communicate purposeful steps to more rapidly increase inflation to the 2 percent target and by suggesting that the Committee views inflation persistently below 2 percent as an acceptable outcome.	2,005	0	dovish
1,021	At longer maturities, yields drifted lower over most of the intermeeting period in response to incoming data that suggested economic growth would remain moderate and inflation subdued,	2,016	0	dovish
1,022	In recent years, aggressive cost-cutting in the United States has been linked to greater emphasis on maximization of shareholder value and less on growth and diversification, which was more prominent in the 1970s and 1980s.	2,005	2	neutral
1,023	Inflation expectations that currently appeared by various measures and survey results to be essentially flat or even to have declined a bit were reinforcing the factors holding down price increases.	2,004	2	neutral
1,024	Their forecasts of consumer price inflation for the year, as measured by the PCE chain-type price index, were centered in a range of 1-1/4 to 1-1/2 percent, with a full range of 1-1/4 to 1-3/4 percent.	2,001	2	neutral
1,025	In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal.	2,004	2	neutral
1,026	Productivity change for this output concept has increased even more than for traditional concepts.	2,001	0	dovish
1,027	Nonetheless, participants generally saw the unemployment rate as still elevated and were not yet confident that the recent progress toward the Committee's employment objective would be sustained.	2,019	0	dovish
1,028	The Committee also noted that output had continued to expand at a solid pace, new hiring had appeared to pick up, and although incoming data on inflation showed that it had moved somewhat higher, longer-term inflation expectations had remained well contained.	2,016	1	hawkish
1,029	Although the Fed hasn't started raising rates or reducing the balance sheet, interest rates have moved up notably.	2,004	1	hawkish
1,030	The Fed's credibility, earned over decades of low inflation, is a powerful policy tool that is critical to our long-term success.	2,007	2	neutral
1,031	Despite further declines in vacancy rates and rising real estate prices, business spending on nonresidential construction also seemed to have been lackluster, with such activity not having changed much since last summer.	1,999	2	neutral
1,032	Indeed, the members did not rule out the emergence of appreciably lower inflation.	2,016	0	dovish
1,033	When anticipations of Fed tapering led to higher U.S. interest rates and higher market volatility, these trades may have been quickly unwound, engendering particularly sharp declines in EME exchange rates and asset prices.	2,007	2	neutral
1,034	Indeed, the commitment to long-run price stability can afford the central bank some flexibility in employing its tools to address shorter-run economic issues.	2,005	2	neutral
1,035	In the end, they concurred that the statement should note that economic growth had rebounded in the current quarter but that it appeared likely to moderate to a more sustainable pace in coming quarters.	2,010	2	neutral
1,036	As you can see, transforming the information available from published statistics into concepts useful for assessing the consequences of monetary policy is, in fact, quite complex.	2,004	2	neutral
1,037	While participants generally felt that the pace of underlying productivity growth remained robust, careful attention would need to be paid to developments regarding unit labor costs and profit margins.	2,004	2	neutral
1,038	King (1999) shows that, if a long enough interval is given to hit the target, there may be little difference between a price level target and an inflation rate target.	1,998	2	neutral

937

I look forward to my conversation with Steve Liesman and to your questions, but first, please allow me to offer a few remarks on the economic outlook, Federal Reserve monetary policy, and our new monetary policy framework.

2,003

2

neutral

938

We heard anecdotes today in the meeting about firms that might be government contractors that were, you know, not sure about whether the contracts would still be in place come January and making employment decisions based on that.

2,019

2

neutral

939

This aggregate growth-accounting framework forms the economic underpinning of key comprehensive productivity statistics produced by the Bureau of Labor Statistics.

2,021

2

neutral

940

The unemployment rate was likely to remain low going forward, and various participants remarked that there were some indications that further strengthening in overall labor market conditions was possible without creating undesirable pressures on resources.

2,003

2

neutral

941

However, making significant use of this option would bias credit flows in the direction of depository institutions and, if the volume of these loans were large enough, could affect the interest rates on the assets, specifically bank loans held by such institutions.

2,004

2

neutral

942

You know, what you hear out there is that demand—you talk to banks, and they’ll say demand for loans is very, very low right now.

2,014

0

dovish

943

The moderation reflected lower growth in most major expenditure sectors.

2,012

0

dovish

944

As a result, growth of spending on consumer durables was expected to be appreciably below the rapid pace in the first half of last year, and housing demand would increase only a little from its recent level.

2,015

2

neutral

945

if you ask me, is this a significant factor shaping monetary policy now, well, it’s on the list of risks, it’s not a major—it’s not a major factor.

2,015

2

neutral

946

And as reserves reach durably ample levels, we intend to slow the pace of purchases such that our balance sheet grows in line with trend demand for our liabilities.

1,998

1

hawkish

947

During expansions, equity prices tend to rise, although they often decline before a downturn in the economy.

2,017

2

neutral

948

The review of regional economic developments by the Federal Reserve Bank presidents pointed to moderate expansion in economic activity across much of the nation, though growth was described as modest in a few regions and relatively robust in some others.

2,019

2

neutral

949

The household saving rate, which had already risen considerably, would eventually level out and cease to hold back consumption growth.

2,000

2

neutral

950

Core consumer price inflation continued to slow, and inflation expectations remained subdued over the closing months of 2003.

2,000

0

dovish

951

An unexpectedly sharp increase in wages or inflation could tell you that you’re reaching those points.

2,018

1

hawkish

952

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

neutral

953

Participants expected that productivity growth would pick up as firms slowed hiring to a pace more in line with output growth but acknowledged that the improvement might be limited, particularly if business investment spending were to remain soft.

2,008

2

neutral

954

Conversely, fiscal policy expansion in the surplus countries could be used to augment domestic demand, but any such adjustments would need to take account of medium-term goals for fiscal consolidation.

2,020

0

dovish

955

However, in the view of most members, the outlook for both economic activity and price pressures remained very uncertain, and thus the timing and magnitude of future policy actions was quite unclear.

2,014

2

neutral

956

I have downplayed the role of the U.S. federal budget deficit today, and I disagree with the view, sometimes heard, that balancing the federal budget by itself would largely defuse the current account issue.

2,003

2

neutral

957

Those participants saw substantial slack in resource utilization and hence continued to judge that inflation was likely to remain subdued over the medium term as the economy continued to recover.

2,000

0

dovish

958

Pure bubbles--increases in asset prices that are 100 percent air--are, I suspect, rare.

2,000

2

neutral

959

Even as the outlook for real activity has weakened, there have been some important developments on the inflation front.

2,003

1

hawkish

960

Stock options are incorporated, based on gains upon exercising the options, in the productivity and cost measure, but not in the ECI.

2,006

2

neutral

961

With capacity utilization already at high levels, relatively rapid growth in inventory investment, if it were superimposed on stronger-than- projected expansion in final demand, could portend serious pressures on resources and inflationary consequences for the economy.

2,020

1

hawkish

962

We might look to the historical experience with oil price shocks in the 1970sâ€”not a happy story.

2,021

2

neutral

963

But in many countries around the Chair Yellen’s Press Conference FINAL world that are important commodity exporters, the decline we’ve seen in oil prices has had a depressing effect on their growth, their trade with us and other trade partners, and caused problems that have had spillovers to the global economy as well.

2,018

0

dovish

964

Survey and market measures of long-term inflation expectations did not suggest that the earlier higher inflation readings were going to persist.

1,999

2

neutral

965

This is a tangible recent example of the need both to judge how the equilibrium real interest rate that is relevant for policy might have changed from a perceived long-run level and to set policy against the background of such an understanding.

2,003

2

neutral

966

Private nonfarm payroll employment increased appreciably on balance over September and October.

1,996

1

hawkish

967

it does have a bearing on the inflation outlook.

2,021

2

neutral

968

Nonetheless, given a recovery in U. S. domestic demand approximating their current forecasts, growth in imports likely would exceed that of exports by a wide margin over the forecast horizon.

2,014

1

hawkish

969

My fellow governors and I routinely receive from our staff a translation of the term structure of Treasury yields into implied forward rates, volatility inferred from options prices, and paths for expected monetary policy action consistent with futures prices.

2,021

2

neutral

970

So for many, many years, we’ve been far from maximum employment and stable prices, and so the need for accommodative policy has been—has been clear.

2,016

0

dovish

971

The Federal Reserve’s response is guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system.

2,020

1

hawkish

972

While recognizing the value of smoothing, I still feel that in the interest rate targeting regime the Fed now uses, we should at times be ready to change interest rates quite quickly in response to economic conditions.

2,019

2

neutral

973

However, at 7.7 percent, the unemployment rate remains elevated.

2,013

0

dovish

974

Overall, research indicates that trade with developing economies in particular has slowed the rate of growth of import prices faced by industrialized countries, with estimates of the reduction ranging widely from 1/2 to 2 percentage points.

2,007

2

neutral

975

In other cases, it’s pretty clear that inflation has spread more broadly across services.

2,013

1

hawkish

976

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

dovish

977

Lessons from Past Productivity Booms First, many of the technological innovations associated with past productivity booms were general purpose technologies (GPTs) with widespread applicability.

2,005

2

neutral

978

To the extent that these producers are foreign, there should be a corresponding drop in domestic demand.

2,007

0

dovish

980

Also, the Committee will pay close attention to measures of inflation expectations to ensure that those expectations remain well anchored.

2,018

1

hawkish

981

Construction employment posted another large increase, probably owing in part to hurricane-related activity.

2,006

2

neutral

982

However, it is not yet clear how high we will need to raise the federal funds rate and how much time will pass before we begin to see inflation moving back down in a consistent and lasting way.

2,004

1

hawkish

983

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

neutral

984

Inflation is much too high, and I strongly believe that bringing inflation back to our target is a necessary condition for meeting the goals mandated by Congress of price stability and maximum employment on a sustainable basis.

2,005

1

hawkish

985

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

2

neutral

986

multifactor productivity growth fell to a pace of 0.4 percent, the slowest pace of any of the periods shown on the table.

1,998

2

neutral

987

But the cumulative force of recent developments appears likely to yield a slowing in the pace of growth next year.

2,006

0

dovish

988

Long-term unemployment in the current economy is—is the worst—really the worst it’s been in the postwar period.

2,012

0

dovish

989

Clearly, businesses regarded such investments as highly profitable, and they appeared to be leading to gains in productivity that in turn were helping to offset rising compensation and to maintain profit margins in highly competitive markets.

2,022

2

neutral

990

I strongly supported the FOMC's decision last week, and I expect to support additional rate increases until we see significant progress toward bringing inflation down.

2,001

1

hawkish

991

In those Districts in which activity had been adversely affected by the drop in energy prices, drilling activity was either contracting less rapidly or was stabilizing.

2,010

0

dovish

992

Over the same period, demand for auto loans reportedly strengthened further at many banks.

2,012

0

dovish

993

The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

2,005

0

dovish

994

But the importance of price stability has sometimes been insufficiently appreciated in our central bank's history, and, as Allan Meltzer will soon point out, such episodes have had unfortunate consequences.

2,006

1

hawkish

995

Real GDP was forecast to decline and the unemployment rate to rise, on net, in the first half of this year.

2,008

0

dovish

996

Indeed, I would argue that over the past eight years, the framework served us well and supported the Federal Reserve's efforts after the Global Financial Crisis (GFC) first to achieve and then, for several years, to sustainâ€”until cut short this spring by the COVID-19 pandemicâ€”the operation of the economy at or close to both our statutorily assigned goals of maximum employment and price stability in what became the longest economic expansion in U.S. history.

2,006

1

hawkish

997

Such a directive would imply that any tightening should be implemented promptly if developments were perceived as pointing to rising inflation.

1,999

1

hawkish

998

Domestic demand growth has slumped in many foreign economies because of varying combinations of an increase in saving rates and a decline in investment.

2,017

0

dovish

999

Our current framework for implementing monetary policy is working very well.

2,021

2

neutral

1,000

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

dovish

1,001

Inflation had been subdued of late,

2,004

0

dovish

1,002

But my colleagues and I continue to believe that the factors that are responsible this year for holding inflation down are likely to prove transitory.

2,020

2

neutral

1,003

But low rates are not solely or even primarily a result of the Federal Reserve's accommodative monetary policies; they are rooted in the market's expectations of low inflation and the weakness of the economic recovery, factors weighing on rates not just in the United States but throughout the advanced economies.7 Given low real rates and low inflation, expected nominal returns should be low across all asset classes.

1,998

0

dovish

1,004

Consistent with the optimism driving stock prices, spreads of corporate bond yields over comparable-maturity Treasury yields narrowed markedly across the credit spectrum, most notably for debt securities of the lowest credit quality firms.

1,996

0

dovish

1,005

As we gain experience with the enhanced forecasts, we will continue to evaluate how best to promote stability of both prices and employment.

2,004

1

hawkish

1,006

Shortly after 9 a.m. each morning, the Desk staff and staff members at the Board of Governors confer over the phone to discuss their respective estimates of the day's demand for balances as well as to consider factors that may affect supply.

2,006

2

neutral

1,007

These authors point out (as have many others) that, when nominal interest rates are at or near zero, the central bank can lower the real rate of interest only by creating expectations of inflation on the part of the public.

2,003

2

neutral

1,008

Smoothing through these variations, average monthly job growth appears to have stepped down from last year’s strong pace, but job gains remain well above the pace necessary to provide jobs for new labor force entrants.

2,020

2

neutral

1,009

And I'm pleased to have the opportunity to share with you, the students of South Dakota State University (SDSU), my experience as a member of the Federal Reserve Board of Governors and my outlook for the U.S. economy.1 Today I will speak to you about my outlook for the U.S. economy and what the Federal Reserve has been doing to support economic activity during the COVID-19 pandemic recovery.

1,998

2

neutral

1,010

A variety of indicators, along with anecdotal reports, suggested that employment was expanding at a fairly good pace and labor compensation was rising moderately.

2,003

1

hawkish

1,011

But what if the Fed were actually to propose a soft form of inflation targeting?

2,004

1

hawkish

1,013

Although the unemployment rate is around a 50-year low, wages are rising broadly in line with productivity growth and underlying inflation.

2,004

1

hawkish

1,014

Total U. S. consumer prices, as measured by the PCE price index, increased 1.

1,998

1

hawkish

1,015

But, in the interim, the absence of increasing inflation pressures meant that the Federal Reserve did not need to tighten to bring demand back in line with the potential as soon as it otherwise might have needed to.

2,013

0

dovish

1,016

While these studies allow for differences in the weighting of price indexes across different income groups, they rely on the same elementary price indexes for subcategories of goods and services.

2,017

2

neutral

1,017

The ebbing of stimulus from last year's tax cuts also could tend to slow growth in consumer spending.

2,011

0

dovish

1,018

What does this suggest about monetary policy strategy going forward?

2,022

2

neutral

1,019

Together these structural changes would imply that the economy can now operate at a lower unemployment rate and at a higher growth rate than previously without inflationary consequences.

2,019

0

dovish

1,020

Mr. Kocherlakota dissented because, in his view, the new forward guidance in the fifth paragraph of the statement would weaken the credibility of the Committee's commitment to its inflation goal by failing to communicate purposeful steps to more rapidly increase inflation to the 2 percent target and by suggesting that the Committee views inflation persistently below 2 percent as an acceptable outcome.

2,005

0

dovish

1,021

At longer maturities, yields drifted lower over most of the intermeeting period in response to incoming data that suggested economic growth would remain moderate and inflation subdued,

2,016

0

dovish

1,022

In recent years, aggressive cost-cutting in the United States has been linked to greater emphasis on maximization of shareholder value and less on growth and diversification, which was more prominent in the 1970s and 1980s.

2,005

2

neutral

1,023

Inflation expectations that currently appeared by various measures and survey results to be essentially flat or even to have declined a bit were reinforcing the factors holding down price increases.

2,004

2

neutral

1,024

Their forecasts of consumer price inflation for the year, as measured by the PCE chain-type price index, were centered in a range of 1-1/4 to 1-1/2 percent, with a full range of 1-1/4 to 1-3/4 percent.

2,001

2

neutral

1,025

In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal.

2,004

2

neutral

1,026

Productivity change for this output concept has increased even more than for traditional concepts.

2,001

0

dovish

1,027

Nonetheless, participants generally saw the unemployment rate as still elevated and were not yet confident that the recent progress toward the Committee's employment objective would be sustained.

2,019

0

dovish

1,028

The Committee also noted that output had continued to expand at a solid pace, new hiring had appeared to pick up, and although incoming data on inflation showed that it had moved somewhat higher, longer-term inflation expectations had remained well contained.

2,016

1

hawkish

1,029

Although the Fed hasn't started raising rates or reducing the balance sheet, interest rates have moved up notably.

2,004

1

hawkish

1,030

The Fed's credibility, earned over decades of low inflation, is a powerful policy tool that is critical to our long-term success.

2,007

2

neutral

1,031

Despite further declines in vacancy rates and rising real estate prices, business spending on nonresidential construction also seemed to have been lackluster, with such activity not having changed much since last summer.

1,999

2

neutral

1,032

Indeed, the members did not rule out the emergence of appreciably lower inflation.

2,016

0

dovish

1,033

When anticipations of Fed tapering led to higher U.S. interest rates and higher market volatility, these trades may have been quickly unwound, engendering particularly sharp declines in EME exchange rates and asset prices.

2,007

2

neutral

1,034

Indeed, the commitment to long-run price stability can afford the central bank some flexibility in employing its tools to address shorter-run economic issues.

2,005

2

neutral

1,035

In the end, they concurred that the statement should note that economic growth had rebounded in the current quarter but that it appeared likely to moderate to a more sustainable pace in coming quarters.

2,010

2

neutral

1,036

As you can see, transforming the information available from published statistics into concepts useful for assessing the consequences of monetary policy is, in fact, quite complex.

2,004

2

neutral

1,037

While participants generally felt that the pace of underlying productivity growth remained robust, careful attention would need to be paid to developments regarding unit labor costs and profit margins.

2,004

2

neutral

1,038

King (1999) shows that, if a long enough interval is given to hit the target, there may be little difference between a price level target and an inflation rate target.

1,998

2

neutral