mr meyer focuses on the implications for the conduct of current monetary policy in the united states remarks by mr laurence h meyer, member of the board of governors of the us federal reserve system, before the philadelphia council for business economics, federal reserve bank of philadelphia, pennsylvania on 8 september 1999. * * * often the most interesting part of a presentation on a challenging subject – such as the economic outlook and the implications for monetary policy – is the q & a after the formal remarks. this is especially the case when the audience is well informed and has strong views about the subject – as is always the case with a nabe group. this suggested an innovative approach : dispensing altogether with the formal remarks and going directly to the q & a. my initial reaction to this insight was : wow – no paper to write, what a relief! my second response was, on the other hand – and isn ’ t there always an “ other hand ” when economists start talking – i always remind my audiences at the end of my talks that i am now prepared to “ entertain ” their questions. they soon learn that can be rather different from answering them. this distinction is important because there are some questions to which i am not prepared to respond. today i will try to resolve this tension by proceeding directly to the q & a, but, at the same time, orchestrating the q & a by first identifying the questions that i am prepared to answer and then answering them. when i have completed this exercise, you are welcome to offer your own answers to my questions or, of course, raise additional questions for me to entertain. i will ask and answer two sets of questions – the first related to the economic outlook and the second to the strategy for monetary policy. in each case, i will focus on the implications for the conduct of current monetary policy. let me also emphasize that both the questions and the answers reflect my own views and should not be interpreted as the position of the fomc or the board of governors. i. outlook q & a 1. has there been an upturn in productivity growth? what we can confidently say is that, since late 1995, actual productivity growth has increased and, indeed, moved still higher at the end of 1998 and through early 1999. in addition, this improvement cannot be fully accounted for as a normal cyclical improvement because productivity growth increased further after gdp growth stabilized at about 4 %. this supports the view that there has been an increase in trend productivity growth.

of the dodd - frank act, we are also continuing to review the lessons we learned during the crisis and the results of our recent research. in most cases, this work is more likely to result in supervisory guidance than regulation. supervisory guidance is commonly viewed as a means to restrict activity but, in fact, during the crisis much of the guidance we issued actually directed bankers and bank examiners to take a balanced approach. for example, we issued guidance urging banks to continue to make loans to all qualified borrowers and, in particular, to continue lending to creditworthy small businesses. 12 we also issued detailed guidance about commercial real estate workouts to encourage prudent modifications of real estate loans. 13 lending is the primary source of income for most community banks and also the greatest source of risk. as you develop your business plans, some of the most important decisions you will make relate to lending. in the planning process, banks should define the portion of the lending portfolio they plan to allocate to different loan categories, the investments they are willing to make to develop expertise and to manage credit and compliance risk, and the levels of credit and interest rate risk they are willing to assume. so i thought it might be helpful to review some recent developments in loan types that are at the core of community bank lending. residential mortgage lending residential mortgage lending was at the heart of the financial crisis and has been the target of extensive new regulation and supervisory attention, including the rules issued by the cfpb that i discussed earlier. i think community banks are in an especially difficult position with respect to residential mortgage lending. on the one hand, community banks do not appear to have engaged in many of the more problematic practices that led to the crisis. and their rate of seriously delinquent residential mortgage loans is significantly lower than the overall rate of serious delinquencies on such loans made to prime borrowers, indicating that community banks largely have managed their existing portfolios responsibly. on the other hand, residential mortgage loans made by community banks do frequently share some characteristics, such as higher rates and balloon payments, with the subprime lending that proved to be so disastrous. at the same time, mortgage lending, which averages about one - fourth of community bank loan portfolios, is an important product line for community banks. further, federal reserve research indicates that the residential mortgage loans made by community banks make up a small but vital part of credit availability in the housing market. the challenge for regulators is to design