Prior discussion:
speaker: CHAIRMAN GREENSPAN.
text: President Boehne. 
speaker: MR. BOEHNE.
text: There has been a fair amount of discussion about capacity--how much of it we have left before we have inflationary pressures--and about the growth potential of the economy. Most of these estimates, particularly the growth potential, can change with seemingly small changes in assumptions, like labor force participation rates, productivity increases, and that sort of thing. I presume that you are thinking of a capacity growth rate of maybe 2-1/2 percent or maybe 2-1/2 to 3 percent. Do you have a view as to whether we're likely to be on the high end of a range like that or on the low end, given the recent trends in labor participation and what appears to be fairly strong capital spending, especially equipment spending? 

MR. PRELL. "We feel that the 2-1/2 percent potential is a reasonable working assumption."

Full utterance: Our working assumption is that, in the near term, potential output growth is about 2-1/2 percent. I think one might take a more optimistic view of the underlying productivity trend--assign more of the increase we've seen over the past few years to perhaps sustainable underlying trend growth, as opposed to the normal cyclical component. But we think that's going out on a limb a bit at this point. We've already assumed a considerable pickup in trend productivity growth from what we were experiencing prior to the 1990s. On the labor force side, we haven't seen much lift yet in labor force participation and the population trends are very hard to read. It's conceivable that the trend in labor force growth isn't even quite so strong as we've anticipated, which is not robust by historical standards. We feel that the 2-1/2 percent potential is a reasonable working assumption. We don't advocate that the Committee take that number as gospel and make its policies on that assumption and close its eyes to the incoming evidence. But we think that's a reasonable estimate for now. I must say that, for example, in a recent Business Week article there was much talk about how the world was changing in terms of productivity growth, and I think high-tech investment is one of the elements in that story. In quantitative terms, the net investment from that kind of equipment isn't very large because it's rather short-lived; it turns over relatively rapidly. So the capital stock in that sense isn't growing very rapidly. But if you believe that it is affording firms the opportunity to reorganize in major ways the way they do things and is really creating disproportionate efficiences in a sense, then I think you can make a case for stronger growth. The other thing I found puzzling in that article was that it said because of all of this, one needn't worry so much about inflation. And the key argument it made was that if there were pressures, firms would just ship production abroad. Well, that's a rather puzzling argument. It says basically that you can avoid inflation by sucking in imports, but that doesn't really enhance domestic economic growth in the GDP sense. So, I think there's some loose thinking behind some of the more optimistic stories.

Opinion: yes
About monetary policy: no