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On the foreign trade side of the economy, an anticipated firming of economic conditions abroad would provide impetus to real net exports, At the same time, however, imports were expected to rise appreciably in response to the expansion of domestic economic activity and the appreciation of the dollar, and on balance the external sector probably would not be boosting real GDP.

dovish

Productivity Growth and Cost Reductions So, what happened?

neutral

While a number of members saw some slight further disinflation as the most plausible outcome, no one expected a material change in inflation.

neutral

Although real growth was likely to be moderate in coming quarters, in his view it was unlikely to be slow enough to bring core inflation down.

hawkish

And maybe reducing their level of the natural rate of unemployment, which has been the trend.

hawkish

A few members observed that, in their judgment, current and prospective economic conditions--including elevated unemployment and inflation at or below the Committee's objective--could warrant the initiation of additional securities purchases before long.

dovish

Indeed, few long-term inflation forecasts in any country currently exceed 5 percent,

neutral

Very low inflation and deflation pose qualitatively similar economic problems, though the magnitude of the associated costs can be expected to increase sharply as deflationary pressures intensify.

dovish

However, with monetary policy assumed to remain highly accommodative, the staff continued to anticipate that real GDP growth would outpace that of potential over much of this period, leading to a decline in the unemployment rate to historically low levels.

dovish

In the real world, there are two reasons why central bankers still prize credibility, even if it cannot be shown to reduce the costs of disinflation.

dovish

payroll employment posted solid gains, and, on balance, a range of labor market indicators suggested that underutilization of labor resources diminished somewhat.

hawkish

So, we are taking account of international developments, including prospects for growth in our trade partners, in making the forecast we have here.

neutral

Nonfarm payroll employment rose substantially further in October.

hawkish

Market-based measures of inflation compensation have declined somewhat

dovish

(4) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy?

neutral

However, the available measures of expectations--whether from surveys or financial markets--have shown longer-term expectations increasing very little, if at all, throughout this period, providing some assurance about the inflation outlook.

neutral

Additionally, by depressing perceived rates of return abroad, the weakness in foreign demand explains a considerable portion of the run-up in the dollar, as shown in figure 4.

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

they noted that inflation had been persistently below 2 percent during the current economic expansion and that core inflation on a 12-month basis was little changed in recent months at a level below 2 percent.

dovish

However, energy prices were expected to level out, and rents, while difficult to forecast, were viewed by some participants as likely to decelerate in coming quarters.

dovish

I mean certain parts of South Carolina have developed pretty strongly but the part where I come from—mostly agricultural, it has a little bit of manufacturing—has a very high unemployment rate, a high foreclosure rate, and people are having a hard time there.

dovish

wholesale prices edged up in March relative to their level of a year earlier and posted the first increase on a twelve-month basis since July 2000.

hawkish

We continue to discuss whether or not the unemployment rate itself is an adequate measure of how much underutilization of labor resources there really is.

neutral

Models of the term structure of interest rates better fit the data under the assumption that both inflation expectations and beliefs about the central bank's reaction function are evolving (Kozicki and Tinsley, 2001; Rudebusch and Wu, 2003; Cogley, 2005).

neutral

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.

neutral

Committee Policy Action In their discussion of monetary policy for the period ahead, Committee members agreed that the stance of monetary policy should not be changed at this meeting.

neutral

November 01, 2006 Community Development Financial Institutions: Promoting Economic Growth and Opportunity Chairman Ben S. Bernanke At the Opportunity Finance Network’s Annual Conference, Washington, D.C. Share Good afternoon and thank you for inviting me to speak to your annual conference.

neutral

In Japan, consumer prices were about unchanged,

neutral

Even so, the growth of investment spending over this period noticeably outpaced the rise in retained earnings, and thus these corporations turned to the capital markets to fill the widening gap.

hawkish

Significant cost cutting by firms was thought to have led to a sizable increase in productivity growth in the first half of the year

dovish

The Federal Reserve is fully committed to both sides of its mandate—to price stability as well as to maximum employment—and it has both the tools and the will to act at the appropriate time to avoid any emerging threat to price stability.

hawkish

"4 Importantly, the level of uncertainty around the paths for inflation and employment are higher than normal as we navigate the unprecedented reopening of the world economy.

neutral

At the same time, business firms generally were not raising their prices sufficiently to compensate for faster increases in their labor costs, to the extent that the latter were occurring, evidently because of the persistence of intense competition in most markets.

hawkish

The outbreak has also disrupted economic activity in many countries and has prompted significant movements in financial markets.

neutral

As a policymaker, I'd like to think that well-executed monetary and fiscal policies--each focused importantly on their respective long-run goals--played some role in creating economic conditions that fostered noninflationary economic growth.

neutral

They would account for the effects of higher energy prices on the real disposable income and spending demands of the household sector.

hawkish

If a range is selected, questions will arise about the differing implications of movements of inflation inside the range and outside the range and, in the absence of explicitly identifying the mid-point as the target, about where within the range policymakers would prefer inflation to gravitate.

neutral

I would note, by the way, that at the current moment, it doesn’t really matter whether we have one mandate or two, because we’re below our inflation target and we—unemployment is above where we’d like it to be.

dovish

By the way, we’re also not at maximum employment, as I mentioned.

dovish

Earlier in the year, as you will all recall, after careful study over a period of years, actually, the Committee announced the decision to implement monetary policy in an ample-reserves regime.

dovish

Because equity valuations may pose asymmetric risks to the economic forecast, the implied optimal responses of policy to changes in asset prices may be nonlinear.

neutral

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. "

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

The staff viewed the extent of uncertainty around its June projections for real GDP growth and the unemployment rate as roughly in line with the average over the past 20 years.

neutral

Monthly increases in nonfarm payroll employment averaged nearly 180, 000 over the three months ending in November, in line with the average pace of job creation over the past year.

neutral

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.

hawkish

In agriculture, depressed levels of crop prices and weak global demand continued to weaken farm income.

dovish

The strongest case for a link between monetary policy and changes in inflation dynamics is in the greater stability of inflation.

neutral

Indeed, virtually every forecast projects a modest rise in broad measures of U.S. inflation this year, reflecting the dissipation or reversal of favorable supply shocks, most importantly the reversal in the path of oil prices, the stabilization of commodity prices and non-oil import prices, and some rebound in health care costs.

hawkish

An understanding of a likely long-run level of the equilibrium real rate is useful, even though the level is not directly observable, because it provides a general sense of the level that would, over that longer period, allow aggregate supply and demand to move into balance, given the evaluation of secular forces such as productivity and population growth.

neutral

Business contacts in a few Districts reported that they had begun to have some more ability to raise prices to cover higher input costs.

hawkish

A few participants judged that while the labor market was close to full employment, some margins of slack remained; these participants pointed to the employment-to-population ratio or the labor force participation rate for prime-age workers, which remained below pre-recession levels, as well as the absence to date of clear signs of a pickup in aggregate wage growth.

neutral

However, in the past two decades, what constitutes money has been obscured by the introduction of technologies that have facilitated the proliferation of financial products and have altered the empirical relationship between economic activity and what we define as money, and in doing so has inhibited the keying of monetary policy to the control of the measured money stock.1 Another example of ongoing structural change relates to innovations in mortgage finance.

neutral

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.

dovish

Given the substantial uncertainty still attached to projections of money growth consistent with the Committee's basic objectives for monetary policy, the members agreed that there was no firm basis for changing the tentative ranges set in July 1996.

neutral

This supports the view that there has been an increase in trend productivity growth.

dovish

The reserve conditions contemplated at this meeting were expected to be consistent with some moderation in the growth of M2 and M3 over coming months.

neutral

in contrast, however, overall business investment in equipment and software was projected to strengthen in response to the upward trend in replacement demand, especially for computers and software

neutral

Not surprisingly, the projected path of above-trend GDP growth in 2021 and 2022 translates into rapid declines in the projected path for the unemployment rate, which is projected to fall to 3.8 percent by the end of 2022 and 3.5 percent by the end of 2023.

hawkish

In this regard the risks of rising inflation could not be dismissed, and

hawkish

This was a somewhat sharper effect than was anticipated at the beginning of the year and accounts for a small part of the forecast error on inflation.

neutral

moreover, slow growth left the recovery more vulnerable to negative shocks.

dovish

One involves the so-called zero bound on nominal interest rates; the other involves labor markets.

neutral

The recent lower readings on inflation have been driven significantly by what appear to be one-off reductions in certain categories of prices, such as wireless telephone services and prescription drugs.

dovish

Nonfarm payroll employment continued to expand through July and the civilian unemployment rate was unchanged at 4.

hawkish

* * * As the transcripts of FOMC meetings attest, making monetary policy is an especially humbling activity.

neutral

In their consideration of monetary policy at this meeting, participants reaffirmed 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.

dovish

However, as had been the case for many years, the members remained concerned that forecasts of money growth were still subject to a wide range of error in terms of the anticipated relationships between money growth and aggregate economic performance.

neutral

However, household spending had been relatively robust during the cyclical downturn and likely had only limited room for a pickup over coming quarters, and intense competitive pressures could well constrain profits, investment, and equity prices.

neutral

The Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

neutral

And we’ve talked about the effects on asset prices,

neutral

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.

dovish

The unemployment rate ticked down to 5.

hawkish

And, as I went into detail in Jackson Hole and won’t repeat all of that there, there are other ways in which we see underutilization—high levels that have come down only very marginally of part-time employment for economic—or involuntary part-time employment, perhaps some remaining shortfall of labor force participation as a result of cyclical factors.

neutral

This secular decline in term premiums since 1990 appears to be correlated with the decline in long-run inflation uncertainty and in short-term interest rate uncertainty.

dovish

Therefore, monetary policy in Japan might be affected not only by views about how such policies would affect macroeconomic performance, for given fiscal policies,

neutral

These inferences are supported by some empirical evidence.10 On the other hand, the increased liquidity of home equity may lead consumer spending to respond more than in past years to changes in the values of their homes; some evidence does suggest that the correlation of consumption and house prices is higher in countries, like the United States, that have more sophisticated mortgage markets (Calza, Monacelli, and Stracca, 2007).

neutral

Later I shall turn to concerns about imbalances in equity prices, the personal saving rate, the current account, and the household debt burden.

neutral

Comparing the Theoretical Prediction to Recent Experience The swing from budget deficit to surplus has been much more dramatic than was expected when the fiscal year 1994 budget was adopted.

neutral

But it could be that if interest rates rise quickly, for example, that we would be in a situation of not giving remittances to the Treasury for a couple of years, and that would create problems, no doubt, for the Fed in terms of congressional response.

neutral

Housing activity showed signs of dropping off from peak levels during the latter part of the summer, but the decline in mortgage rates this fall produced an upturn in several indicators of demand for single-family housing, including a rebound in a survey index of homebuying conditions.

neutral

The period of sub-par expansion was expected to foster an appreciable easing of pressures on resources and some moderation in core price inflation.

dovish

Monetary policy, maximum employment, stable prices—it’s less obvious to me.

neutral

For equities, a stock's price-earnings ratio is a standard benchmark for assessing valuation.

neutral

Conclusion In conclusion, let us not forget that the declines in inflation over the past two decades and the resulting boost to monetary credibility we currently enjoy were earned with some economic pain, as the pace of economic activity was slowed, at times severely, to bring inflation down.

hawkish

While each of the Asian economies is unique in many important respects, the sources of their spectacular growth in recent years, in some cases decades, and the problems that have emerged are relevant to a greater or lesser extent to nearly all of them.

neutral

Discussion of Communications Regarding Economic Projections As a follow-up to the FOMC's discussion in October about providing more information on the Committee's collective judgment regarding the economic outlook and appropriate monetary policy, the staff presented several options for enhancing the Summary of Economic Projections (SEP).

neutral

But that has not—what, what happens is that when wages move up because unemployment is low, companies have been absorbing that increase into their margins rather than raising prices.

neutral

For many years, forecasters could assume a modest, but stable, trend productivity growth rate and fairly predictable growth in the labor force.

neutral

Compared with the baseline, the disruption to economic activity was more severe and protracted in this scenario, with real GDP and inflation lower and the unemployment rate higher by the end of the medium-term projection.

dovish

That is why foreign trade deficits are typically thought of as self-correcting.

neutral

The slower growth of M2 followed strong expansion in August and September, however, and growth since midyear was at about the same pace as in the first half of the year.

neutral

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.

dovish

The members recognized that a typical recovery-period surge in consumer spending was unlikely inasmuch as expenditures had registered solid growth through the economic downturn, implying an absence of significant pent-up demands.

dovish

Over time, spot prices are inexorably drawn back to the long-term equilibrium price, as the balance between underlying supply and demand is restored.

neutral

Home prices continued to rise briskly.

hawkish

Inflation targeting was also associated with increased communication and transparency designed to clarify the central bank's policy intentions.

hawkish

Information on the price expectations of businesses--who are, after all, the price setters in the first instance--as well as information on nominal wage expectations is particularly scarce.

neutral

The Congressional Budget Office (CBO) estimates that federal tax increases and spending cuts will slow the pace of real gross domestic product (GDP) growth about 1-1/2 percentage points this year.3 Tight fiscal policy may also be preventing faster reductions in unemployment.

dovish

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.

neutral