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FinanceMTEB 6

While these developments were positive, participants noted several factors that likely would continue to restrain the expansion in economic activity.

dovish

Members agreed that the Federal Reserve was committed to using its full range of tools to support the U. S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals.

neutral

When considering the risks to the labor market, these risks must be viewed in the context of its current strength and with the understanding that our primary challenge is to get inflation under control.

hawkish

In these circumstances, domestic demand would need to decelerate considerably for growth to proceed at a sustainable pace.

hawkish

Job gains had been solid, on average, since the beginning of the year, and the unemployment rate had declined.

hawkish

Inflation is a significant challenge for everyone, but it hits lower- and moderate-income people the hardest, since they spend a larger share of their incomes on necessities and often have less savings to fall back on.

hawkish

Japan enjoyed effective price stability through most of the 1980s.

neutral

Survey measures give us an idea of what the average household expects inflation to be in the coming years.

neutral

In such an environment, a central bank mandated to pursue price stability can be flexible according to the circumstances, while one with a numerical target may need to obtain formal modification of its objectives.

neutral

Market sentiment toward the syndicated leveraged loan market also improved, with the average bid price increasing noticeably and bid-asked spreads narrowing a bit further.

neutral

In their discussion of the balance-of-risks sentence in the press statement to be issued shortly after this meeting, all the members agreed that the latter should continue to express, as it had for every meeting earlier this year, their belief that the risks remained weighted toward rising inflation.

hawkish

So you’re talking about the inflation target, basically.

neutral

Now, we’ve long expected, as most analysts have, to see some slowing in Chinese growth over time as they rebalance their economy.

dovish

The staff assessed that households were in a better position than in the mid-2000s to weather a downturn in house prices, noting that mortgage debt growth has significantly lagged growth in house prices, leaving households with substantial equity cushions.

neutral

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.

dovish

One prominent example is with semiconductor producers and their need to dramatically alter the mix of production to meet demands of the high-tech and automotive industries.

neutral

During the period examined, the rate of overall consumer inflation was 2.78 percent, as measured by the regular CPI-U for All Items.

hawkish

Hungary and Poland adopted inflation targeting following parliamentary acts stipulating that price stability was the main objective for the central bank.

hawkish

Fourth, I will discuss the major findings of the review as codified in our new Statement on Longer-Run Goals and Monetary Policy Strategy and highlight some important policy implications that flow from them.

neutral

Prices, interest rates, stock prices, and other signals produced by market economies to encourage the distribution of productive resources have no inherent moral content.

neutral

In contrast, blue-collar employment fell sharply in most of the other countries.

dovish

But before I return to the prospects for 1998 and the challenges for monetary policy, I will offer a retrospective on 1997.

neutral

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.

dovish

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.

neutral

A couple of participants indicated that they would not favor adopting a restrictive policy stance in the absence of clear signs of an overheating economy and rising inflation.

neutral

Later in the week, however, market interest rates moved up in response to the release of the minutes of the February meeting and the mention therein of some sentiment for a larger policy tightening than had been undertaken.

hawkish

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.

neutral

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.

neutral

In conjunction with the FOMC meeting in April, all meeting participants (Federal Reserve Board members and Reserve Bank presidents) provided annual projections for economic growth, the unemployment rate, and inflation for the period 2008 through 2010.

neutral

And, and some of the answer to that may be price.

neutral

Participants also observed that crude oil prices fell over the intermeeting period and other commodity prices also moderated, developments that were likely to damp headline inflation at the consumer level going forward.

dovish

Further evidence that firms still have not fully adapted their operations to the latest state of technology also is provided in a recent study4 that attempts to measure the "technological gap"--that is, the difference between the productivity of leading-edge capital and the average productivity embodied in the current capital stock.

neutral

However, the projected step-up in real GDP growth over the second half of this year was marked down a little, partly reflecting softer news on construction.

dovish

With longer-run inflation expectations assumed to remain stable, changes in commodity and import prices expected to be modest, and significant resource slack persisting over the forecast period, inflation was forecast to be subdued through 2015.

neutral

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.

neutral

Overall employment gains were relatively well maintained, and labor markets were still tight though showing signs of softening.

neutral

The considerable monetary ease already in place, the prospect of significantly more fiscal stimulus, the continuing strong gains in structural productivity, and the anticipated improvement in business confidence would provide significant impetus to spending.

neutral

Moreover, many members saw some risk that an easing move at this point might trigger a strong further advance in stock market prices that would not be justified on the basis of likely future earnings and could therefore lead to a relatively sharp and disruptive market adjustment later.

neutral

And inflation is well above target.

hawkish

During this time of reopening, we are likely to see some upward pressure on prices, and I’ll discuss why.

dovish

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

neutral

Although some members noted that a case could be made that the risks to inflation were now somewhat skewed to the upside and those to sustainable economic growth perhaps to the downside, the most likely outcome remained one of stable prices and sustainable growth, and the Committee agreed that it should retain a balanced assessment of risks conditional on appropriate policy.

neutral

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

neutral

It was observed that, after the early 1980s, the pass-through of energy prices into core inflation had been quite limited, suggesting that, in current circumstances, core inflation could stay relatively low and overall inflation would probably drop back if inflation expectations remained contained.

neutral

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

dovish

However, reports from business contacts in several Districts indicated that employers in labor markets in which demand was high or in which workers in some occupations were in short supply were raising wages noticeably to compete for workers and limit turnover.

hawkish

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.

dovish

The staff viewed the uncertainty around the forecast for economic activity as similar to its normal level over the past 20 years.

neutral

A considerable literature suggests that successful monetary policies should stabilize, or "anchor," inflation expectations so as to prevent them from becoming a source of instability in their own right (Goodfriend, 1993; Evans and Honkapohja, 2003).

hawkish

Broad stock price indexes rose, on net, over the intermeeting period, boosted in part by favorable earnings reports from the retail sector.

neutral

Unfortunately, from the point of view of both the analyst and the policymaker, the link between an asset's price and the structure of its return is hard to pin down, as it typically embodies complex factors that are inherently difficult to measure, such as expected future earnings, riskiness, and risk aversion.

neutral

The slowdown would reflect factors that were expected to damp the growth of overall business investment spending and a greater saturation of potential computer markets that might lead to more emphasis on replacement demand rather than the further expansion of capacity.

dovish

Although productivity growth had slowed from the extraordinarily rapid pace that prevailed earlier in the expansion, data for the fourth quarter of 2004, as well as preliminary indications for the first quarter of this year, suggested that gains from efficiency remained substantial.

neutral

Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.

neutral

Under these circumstances, policymakers must be cognizant of the shortcomings of our published price indexes to avoid misguided actions that will provoke unintended consequences.

neutral

The American economy is very strong and well positioned to handle tighter monetary policy.

hawkish

The unwinding in the early months of 1997 of special factors that had boosted net exports in the fourth quarter of 1996 was offsetting some of the effects on production of the persisting strength in domestic demand.

neutral

And as I mentioned earlier, the unemployment decline last month was more than 100 percent accounted for by declines in participation.

dovish

The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.

neutral

As a case in point, the increase in the transparency of U.S. monetary policy over the past two decades has been quite significant.

neutral

Risks to the inflation projection also were seen as balanced.

neutral

Rather, central banks have learned over the years that their policies should be devoted to fostering macroeconomic balance and price stability.

hawkish

Measures of inflation compensation were little changed on net.

neutral

The Summary of Economic Projections by FOMC participants in December 2020 had the unemployment rate moving down to 4.2 percent at the end of 2022 and inflation moving up to 2 percent only in 2023.

dovish

However, we now know that an unexpected and unrecognized slowdown in productivity growth occurred in 1973.

hawkish

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.

hawkish

In these models, each asset price contains a risk premium that represents the additional return demanded by risk-averse investors for bearing risk.

neutral

Some members nonetheless referred to indications of increasing expenditures for various categories of high-tech equipment and software, and they noted that impetus to demand from a positive outcome in the war against Iraq should have a favorable effect on business capital spending, especially if it were accompanied by a rally in the stock market.

neutral

In light of asset market developments over the intermeeting period, which in large part appeared to reflect heightened expectations among investors that the Federal Reserve would undertake additional purchases of longer-term securities, the November forecast was conditioned on lower long-term interest rates, higher stock prices, and a lower foreign exchange value of the dollar than was the staff's previous forecast.

dovish

Inflation has moved up in recent months, mainly reflecting higher prices for some commodities and imported goods.

hawkish

In their discussion of monetary policy for the period ahead, Committee members generally agreed that their overall assessments of the economic outlook were little changed since their previous meeting.

neutral

” 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.

hawkish

If we adjust the 6.7 percent headline unemployment rate for the decline in participation since February and the Bureau of Labor Statistics estimate of misclassification, the unemployment rate would be 10 percent, similar to the peak following the Global Financial Crisis.

hawkish

First, with more complete information available, markets will price financial assets more efficiently.

neutral

By the same token, the rate of price inflation was lower than had been reported, consistent with the findings of a number of studies of distortions in published price data.

neutral

The entire Committee is committed to achieving our 2 percent inflation objective over the December 16, 2015 medium term, just as we want to make sure that inflation doesn’t persist at levels above our Chair Yellen’s Press Conference FINAL 2 percent objective.

dovish

Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

dovish

Fast growth of productivity, by buoying expectations of future advances of wages and earnings and thus aggregate demand, enables real interest rates to be higher than would otherwise be the case without restricting economic growth.

hawkish

The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.

dovish

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.

hawkish

From a longer-term perspective we have been guided by a firm commitment to contain any forces that would undermine economic expansion and efficiency by raising inflation, and we have kept our focus firmly on the ultimate goal of achieving price stability.

hawkish

Again, while I do not shirk the responsibility of the Fed having to do what it can to meet its mandate, obviously, a broad range of policies can affect growth and employment, and I hope that there will be a range of actions that will complement and supplement the Federal Reserve’s efforts.

neutral

The vote encompassed approval of the paragraph below for inclusion in the press statement to be released shortly after the meeting: "The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal.

neutral

The weakness in commodity prices and the appreciation of the dollar also continued to weigh on activity in the energy and agricultural sectors.

dovish

Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

neutral

Such departures of expectations from perfect rationality can be an important source of observed inflation dynamics.

neutral

Members agreed that their policy decisions would remain data dependent, and they continued to include wording in the statement noting that if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate would likely occur sooner than currently anticipated, and, similarly, that if progress proves slower than expected, then increases in the target range would likely occur later than currently anticipated.

neutral

Moreover, we should recognize that these disinflationary effects could dissipate or even be reversed in coming years.

dovish

Three Questions The first question is, "Can the Federal Reserve best meet its statutory objectives with its existing monetary policy strategy, or should it consider strategies that aim to reverse past misses of the inflation objective?"

neutral

At the time of our FOMC meeting in January, prospects for continued economic growth remained favorable, and we judged that monetary policy was well positioned to support that outlook.

dovish

Reserve market conditions associated with this directive had been expected to be consistent with some moderation in the growth of M2 and M3 over coming months.

neutral

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.

neutral

Staff Economic Outlook In the economic forecast prepared by the staff for the March FOMC meeting, real GDP growth was revised down somewhat in the near term, largely reflecting the federal spending sequestration that went into effect on March 1 and the resulting drag from reduced government purchases.

dovish

We have continued to provide guidance, the same guidance that we have for some time, that says the Committee “anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” I know that’s a mouthful, but it says, in effect, that the Committee believes that the economic conditions that have made recovery difficult, we’re getting beyond them.

dovish

The Fed is not authorized to grant money to particular beneficiaries, to meet the payroll expenses of small businesses, or to underwrite the unemployment benefits of displaced workers.

neutral

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.

neutral

* * * What then are the implications of this largely irreducible uncertainty for the conduct of monetary policy?

neutral

Monetary policy has a role, and it really is in, you know—our original role was providing liquidity to financial systems when they’re under stress, and that’s—that’s really part of what we did today.

dovish

The monitoring range for growth of total domestic nonfinancial debt was set at 3 to 7 percent for the year.

neutral

It is true that changes in longer-term interest rates in the United States—but also in other advanced economies—does have some effect on emerging markets, particularly those who are trying to peg their exchange rate, and can lead to some capital inflows or outflows.

neutral