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Residential construction activity remained at a high level, evidently supported in part by recent declines in mortgage interest rates.

dovish

In their assessment of the outlook for inflation, members agreed that

neutral

Continued gains in employment and income, high household net worth, and low gasoline prices were viewed as factors that should support consumer spending in coming months.

hawkish

Given that we have yet to experience difficulties in funding a current account deficit that exceeds 6 percent of our GDP, what are the limits to the foreign markets' absorption of claims on U.S. residents?

neutral

However, a few participants expressed concern that higher household wealth might not translate into greater consumer spending, cautioning that household income growth remained slow, that households might not treat the additions to wealth arising from recent equity price increases as lasting, or that households' scope to extract housing equity for the purpose of increasing their expenditures was less than in the past.

neutral

1 Chair Yellen intended to say that “interest rate differentials globally do tend to induce capital flows that have impacts on exchange rates.” GREG ROBB.

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

However, nothing prevents a central bank from switching its focus from the price of reserves to the quantity or growth of reserves.

neutral

This paper develops and estimates a habit persistence consumption asset pricing model in which the sign of the equilibrium covariance between equity and bond returns depends on the reduced-form correlation between inflation and the output gap, the correlation between the federal funds rate and the output gap, as well as the equilibrium persistence of inflation.

neutral

And we were actually quite concerned that growth was not sufficient to continue to bring the unemployment rate down.

dovish

The risks to the forecast for real GDP were seen as tilted to the downside, reflecting the staff's assessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks; the downside risks to the forecast of economic activity were seen as more pronounced than in December, mainly reflecting the greater uncertainty about global economic prospects and the financial market turbulence in the United States and abroad.

dovish

Faust and others, 2006) and appear to have a strong effect on foreign equity indexes as well.2 In contrast, the effects of foreign short-term rates on U.S. asset prices appear to be relatively weaker.

neutral

The changes—the financial market changes that you described, particularly the increase in stock prices, the increase in longer-term rates, and the strengthening of the dollar, suggest that many market participants anticipate expansionary fiscal policies that would raise interest rates somewhat in the United States relative to abroad and would cause a strengthening in the dollar.

dovish

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

Expansion of these two monetary aggregates was supported by further rapid expansion in the demand for currency and stronger inflows to retail money market funds at a time of weakness in U. S. bond and equity markets.

hawkish

Price inflation had picked up a little but, abstracting from energy, had remained relatively subdued.

neutral

Moreover, monetary policy actions addressed at a perceived bubble in one sector may have undesirable effects on other asset prices and the economy more generally.

dovish

Scholars disagree somewhat about the extent to which policymakers of the time tried actively to take advantage of this supposed tradeoff, but these ideas likely provided part of the intellectual rationale that made the authorities willing to allow inflation to rise throughout the 1960s and in the early 1970s.

neutral

The recent decline in the dollar was another factor that could add to inflation pressures,

hawkish

At this point, for me, it comes down to what the incoming data and other economic information will tell us about the outlook for inflation.

neutral

Thus, knowing where productivity growth is headed is, in many respects, equivalent to foreseeing our economic destinies.

neutral

Though widely anticipated even before the actions of October, the recession and retrenchment in employment that followed those actions resulted in pressures on the Federal Reserve to reverse course.

dovish

Expectations of greater and longer-lasting slack in labor and product markets than anticipated earlier had led to downward revisions to forecasts of wage and price inflation.

dovish

Committee Policy Action Committee members saw the information received over the intermeeting period as suggesting that economic activity was expanding at a moderate pace.

hawkish

These decisions can then push up prices even more and make inflation harder to get under control.

hawkish

More broadly, however, weaker demand, especially in sectors that have been most affected by the pandemic, has held down consumer prices, and overall, inflation is running well below our 2 percent longer-run objective.

dovish

Such a policy would clearly have near-term costs: It would slow the expansion in demand, damp the creation of new jobs, and keep inflation lower than it otherwise would be.

dovish

Their trade accounts tend to be in surplus, in some cases substantially, an indication that they are supplying more goods into the global economy than they are demanding.

dovish

At earlier stages of processing, the producer price index for core intermediate materials continued to decline through May, albeit at a slower pace than that seen at the end of 2008.

dovish

So the Committee estimates that the longer-run normal level of the unemployment rate is 5.0 to 5.2.

neutral

Thus, I believe this description essentially characterizes the current macroeconomic environment, and my own projection of inflation at a three-year horizon is equal to my assessment of the mandate-consistent inflation rate.

neutral

Indeed, how will we measure inflation, and the associated financial and real implications, in the twenty-first century when our data--using current techniques--could become increasingly less adequate for tracing price trends over time?

neutral

First, policymakers should continuously update their estimates of the NAIRU and the output gap, using all available information, particularly the realizations of unemployment, output, and inflation.

neutral

The dual mandate seems proper and fitting, given that economic costs are incurred both by having inflation stray from its long-run goal and by having output deviate from the economy's potential to produce

neutral

On balance, however, the members generally believed that prospective trends in overall economic activity and the persistence of strong competitive pressures in most markets, including the effects of foreign competition, were likely in the context of now firmly embedded expectations of low inflation to moderate any tendency for price inflation to accelerate over the year ahead.

neutral

From a low near $30 per barrel in late 2003, the price of oil rose to $70 per barrel by the middle of 2006, and it has stayed high, with the current price more than $80.

hawkish

The risks to the forecast for real GDP were seen as tilted to the downside, reflecting the staff's assessment that monetary policy appeared to be better positioned to offset large positive shocks than substantial adverse ones.

dovish

Current Economic Situation and Outlook While the coronavirus (COVID-19) pandemic has taken a tragic human toll measured in terms of lives lost and suffering inflicted, as a direct result of the necessary public health policies put in place to mitigate and control the spread of the virus, the pandemic has also inflicted a heavy toll on the levels of activity and employment in the U.S. economy.

dovish

However, the historical record suggests that permanently lowering inflation expectations may require keeping monetary policy tight for a substantial period, resulting in considerable output and employment losses for a time.

hawkish

I’m more concerned about that than about the possibility, which exists, of higher inflation.

neutral

Nowhere, however, is the challenge to monetary policymakers greater than in emerging economies around the world.

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

However, indicators of economic activity in Japan and Brazil remained weak.

neutral

Nonetheless, the reported rise in employment of temporary workers in recent months could presage a broader increase in job growth and thus was a welcome development.

hawkish

The persistence of that into, into inflation over time is just not there.

dovish

For example, the shift in manufacturing production from artisanal shops in the mid-1800s to factories after the Civil War led to a disproportionate increase in the demand for unskilled labor to operate the new machines.

neutral

Without the accompanying boost to productivity, our progress toward price stability might well have been marked by the social pressures that arose in many previous episodes of disinflation both here and abroad.

dovish

Consider a price increase for a breakfast cereal that increases the prices of both the brand-name cereal and the corresponding lower-priced store-brand cereal but maintains a differential between them.

hawkish

LBOs, and other forms of private equity investment, may force management to implement strategic changes rapidly to restore the firm’s return on equity and boost share prices, in part by increasing financial leverage.

neutral

With respect to the new framework itself, the statement now notes that the neutral level of the federal funds rate has declined relative to its historical average and therefore that the policy rate is more likely than in the past to be constrained by its ELB, and, moreover, that this binding ELB constraint is likely to impart downside risks to inflation and employment that the Committee needs to consider in implementing its monetary policy strategy.

hawkish

Measures of inflation compensation based on TIPS fell in response to the soft reading on core inflation in the November CPI release

neutral

October 19, 2020 U.S. Economic Outlook, Monetary Policy, and Initiatives to Sustain the Flow of Credit to Households and Firms Vice Chair Richard H. Clarida At the Unconventional Convention of the American Bankers Association, Washington, D.C. (via webcast) Share It is my pleasure to meet virtually with you today at the Unconventional Convention of the American Bankers Association.1 I look forward to my conversation with Rob Nichols,

neutral

Policymakers, economists, and market participants see much of this decline as reflecting a permanent fall in the equilibrium rate of interest—that is, the level of the federal funds rate that keeps the economy at full employment with stable inflation in the longer run.

dovish

In a paper presented at a recent conference at the Federal Reserve Bank of San Francisco, Kozicki and Tinsley (2003) develop an empirical model of the economy under the assumptions that the Fed's implicit inflation target is subject to permanent shocks and that the public learns about the Fed's target over time.

neutral

One participant suggested that excess liquidity might be leading to speculation in commodity markets, possibly putting upward pressure on prices.

hawkish

As a result, the likely pace and extent of policy easing expected by investors increased, and yields on nominal and inflation-indexed Treasury coupon securities fell.

dovish

Now with respect to the first objective, the rationale for maximizing employment is fairly obvious.

dovish

In furtherance of these objectives, the Committee at its meeting in February established ranges for growth of M2 and M3 of 1 to 5 percent and 2 to 6 percent respectively, measured from the fourth quarter of 1998 to the fourth quarter of 1999.

neutral

It is again useful to compare estimates of expected inflation derived from breakeven inflation data with estimates of expected inflation obtained from surveys—for example, the expected inflation over the next 5 to 10 years from the University of Michigan Surveys of Consumers.

hawkish

Conditions in the commercial paper (CP) market improved over the intermeeting period, likely reflecting recent measures taken in support of this market, greater demand from institutional investors, and the passing of year-end.

dovish

They also agreed that the inflation situation seemed to have improved slightly and judged that it was no longer appropriate to indicate that a sustained moderation in inflation pressures had yet to be shown.

neutral

With regard to the nation as a whole, members noted that rising levels of employment and incomes were continuing to foster solid growth in consumer spending, a development that was abetted by the sharp increases that had occurred in household wealth as a consequence of the extended uptrend in stock market prices and to a lesser extent the appreciation of home prices.

hawkish

the approach can be applied equally well by "inflation hawks," "growth hawks," and anyone in between.

neutral

Inflation averaging doesn't define how much above 2 percent is moderate and how long some value of elevated inflation should be tolerated.

hawkish

The downside risks from the possibility that longer-term inflation expectations may have edged down or that the dollar could appreciate substantially were seen as roughly counterbalanced by the upside risk that inflation could increase more than expected in an economy that was projected to continue operating above its longer-run potential.

neutral

In terms of the performance of inflation and unemployment, the experience of the past few years has not been unlike a mirror image of the 1970s.

neutral

Some restraint on aggregate demand would come from other sectors of the economy--notably government spending, net exports, housing, and perhaps business inventories.

neutral

In spite of having such slow growth, disappointing productivity growth, we have a labor market that last year generated an average of about 230,000 jobs a month and so far this year has been generating about 180,000 jobs a month.

hawkish

where unemployment continues to fall at a gradual pace as it has been since last September—and we have made some progress since last September

dovish

Inflation had increased somewhat since earlier this year

hawkish

market-based measures of inflation compensation over the next five years, as well as over the five-year period beginning five years ahead, moved down further over the intermeeting period.

neutral

not to target asset prices (or exchange rates).

neutral

Central bank actions are designed in the first instance to influence asset prices and yields, which in turn affect economic decisions and thus the evolution of the economy.

neutral

An intuitive way of thinking about this rise and fall in inflation persistence is that it resulted from an un-anchoring of trend inflation during the period of the Great Inflation, and a re-anchoring in recent years, as the work of Stock and Watson suggests.

neutral

In addition, U.S. inflation remains muted.

dovish

On the supply side, the effect is fairly clear and immediate: An increase in trend productivity growth implies a more rapid pace of growth of the economy's productive capacity.

hawkish

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

However, in my judgment, reliance on these two approaches is not symmetric; instead, the forecast-based approach has become increasingly dominant in the monetary policymaking of leading central banks.

neutral

Another example of deficit targets comes from the balanced-budget requirements of the states, which can be viewed as deficit targets with the target set at zero.

neutral

Members also expressed concern about the potential for an increase in inflation expectations given highly stimulative macroeconomic policies and economic growth that seemed to be gathering momentum.

hawkish

The authors’ principal empirical finding is that the onset and, to a lesser degree, the end of the Great Inflation were closely synchronized across a number of countries.

neutral

As reflected in their SEP projections, participants regarded the current stance of monetary policy as likely to remain appropriate for a time as long as incoming information about the economy remained broadly consistent with the economic outlook.

neutral

Business and household spending are increasing at rates consistent with moderate economic growth, though household spending appears to be rising at a somewhat slower pace than earlier this year.

hawkish

In the Committee’s discussion of monetary policy for the intermeeting period, nearly all members favored keeping the target federal funds rate at 5-1/4 percent at this meeting.

neutral

We also don’t conduct monetary policy in order to prove our independence.

neutral

The presidents' reports often include anecdotal updates from businesses or other sources to provide real-time information on regional economic activity.

neutral

And if the stock theory of the portfolio is correct, which we believe it is, holding all of those securities off of the market and reinvesting and still keeping the, you know, rolling-over maturing securities, will still continue to put downward pressure on interest rates.

dovish

Reserve balances are one among several items on the liability side of the Federal Reserve's balance sheet, and demand for these liabilities—notably, currency in circulation—grows over time.

neutral

Although personally I have no doubt that quantification of the price stability objective is fully consistent with the current dual mandate, I also appreciate the delicate issues of communication raised by such a change.

hawkish

But equity prices were only holding their own after a substantial decline earlier and the dollar had appreciated.

dovish

with domestic spending strong, members were becoming more concerned that those developments might not exert enough restraint on aggregate demand to slow the expansion to a sustainable pace in line with the growth of the economy's potential.

dovish

Also, the recent evidence could be interpreted as indicating that the surprisingly sharp decline in measured inflation in 2003 exaggerated the drop in the underlying rate of inflation.

dovish

On the other hand, if recent productivity gains were to be sustained, as some business contacts indicated they would be, potential output currently could be higher than standard measures suggested, and the high level of the unemployment rate could be a more accurate indication of slack in resource utilization than usual measures of the output gap.

dovish

So let me talk about the coronavirus specifically, and then I’ll turn more to global growth more generally.

neutral

Another clear attempt at political interference emerged in February 1988 when an undersecretary of the Treasury sent a letter to Federal Reserve officials urging them to ease monetary policy.

neutral

Today a rise in oil prices has mixed effects on the economy, lowering real household incomes and thus demand, but raising investment in drilling over time and benefiting oil-producing areas more generally.

hawkish

Specifically, the projections converged on CPI inflation rates of 2-1/4 to 2-1/2 percent in 1997 and 2-1/2 to 3 percent in 1998.

neutral

survey-based measures of longer-term inflation expectations are little changed.

neutral

This monetary expansion could generate domestic inflation unless it is sterilized with other open market sales of securities--and the mere scale of present and expected future debt stocks may make continued sterilization impossible.

hawkish

Higher productivity growth has apparently increased aggregate demand through at least three channels.

hawkish