Thank you, Mr. Chairman. The signals with respect to economic activity in the rest of the world remain mixed. The theme that one hears in various reports from abroad is still great uncertainty, and it is the uncertainty more than anything else that seems to be looming large in the minds of other policy officials. In the package of charts that we distributed, entitled “Recent Developments in International Financial Markets,” the first chart shows exchange rate developments. In the week since you last met, the weighted average value of the dollar relative to other major currencies is down a bit, as shown in the dotted blue line in the bottom panel. And as you can see in the top panel, it’s noticeably down against the euro (the red line) and the yen (the black line). The broad dollar, a measure that brings in currencies such as the Mexican peso and the currencies of other developing countries, is shown as the black line in the bottom panel. That is back almost to where it was on March 12, the date we used as a benchmark because that was the peak in oil prices, the start of the stock market rally, and the beginning of a bit of a dollar rally.
A host of small bits of data have come out about economic activity abroad, though very little of that is post the onset of war. For the most part the data are mixed, but for some countries, particularly those in the euro area, they are somewhat to the soft side. The confidence surveys from the euro area, for example, were down sharply in March. In particular, the German IFO survey, which was consistent with the broader euro average and did have some responses since the outbreak of hostilities, was down substantially. Retail sales in Germany have been down. Today we got the PMI for the euro area. It was slightly above 50 in February and is now at 48.4 for March. All the components are lower, with new orders and employment actually at multiyear lows. So the picture for the euro area economy is confirming softness; whether it’s softer than in the Greenbook projection is hard to tell with only these fragments of data. We’ve also received several pieces of weak data for the United Kingdom. The picture for Japan is, if anything, perhaps slightly the other way. It’s still quite mixed but may be a bit less negative than the characterization we gave in the Greenbook. We’ve had data on household consumption in Japan that indicate positive growth. On the other hand, today we got the Tankan index of business conditions, and it was weaker than expected and painted a rather pessimistic view of the business outlook. All in all I think the data have figured a little in exchange rate moves, but I would tend to agree with Dino and Vincent that the war news more than these tidbits of economic data have moved markets around. On the whole the dollar has tended to depreciate but only by a small amount, as chart 1 shows.
In chart 2 we have some indicators of how the market perceives policy prospects abroad. The ECB Council will be meeting this Thursday, two days from now. Statements made by ECB officials suggest strongly that they are anticipating no change in policy on Thursday; they point to the extreme amount of uncertainty as a reason for not moving. The market in the futures sense is not pricing in a move on Thursday, but if you look at the three-month Eurocurrency futures rates for the euro—the second panel on the left—you can see that the curve has shifted down. The rates today (the black line) versus those a week ago (the dashed red line) clearly indicate that the market is pricing in some additional easing. One can argue about the amount versus the probability, but clearly market players are expecting more easing in the euro area, certainly by September. The same can be said of the Bank of England and the sterling curve. That curve has shifted down (the black line relative to the red dashed line), pricing in easing by the Bank of England—not immediately but certainly by June and perhaps even more by September.
Stock prices are shown in chart 3. They have moved down since a week ago, drifting with a sense of economic weakness and the expectation of a more prolonged war than previously anticipated. Today there was a general move up. You can see a slight tick up in the last bit of each of those lines, as yesterday’s sharp declines were retraced a little today in most of these markets. But on the whole, stock prices are well off the recent peaks associated with the rally that occurred almost immediately after the onset of the war. Euro area stocks have been particularly volatile and Japanese stocks a bit less so. But Japanese stocks are flirting with their lows of March 12 or thereabouts, whereas the other markets are still noticeably above the levels recorded at that point.
Finally, some information on oil prices is depicted in chart 4. Oil prices, too, are drifting with the economic news and the information people think they’re getting about the war situation—moving up slightly both in swap terms and near-term futures. As you can see in the top chart, the price of WTI for May is now above $30 per barrel. It has been fluctuating in that general vicinity, as has the spot price. In the very near term, oil prices are lower than what we incorporated in the Greenbook projection; further out they are back to about the same as in the Greenbook. So as of now the futures curve is telling us that perhaps prices will be lower sooner than one might have thought, but over a sustained period no lower than we had incorporated into the Greenbook. You can see in the bottom chart, though, that futures options allow us to infer a distribution. The red dotted line for December WTI does have a lot of mass at fairly low prices—say, in the $15 to $20 per barrel range. It is fairly recently that the shift toward lower prices has occurred and that the mass has been gathering there. I take that to be a somewhat optimistic sign regarding oil prices. In Nigeria the good news is that a public-sector strike has been avoided—a strike that might have complicated and exacerbated the oil-sector situation. The bad news is that the oil-sector situation is still not good. There’s a story about it in the Wall Street Journal today that’s pretty negative. In Venezuela, production is actually holding at somewhat higher levels than one might have expected, and that is a bit of good news. That’s all I have for today.