Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Certainly. As we have reported at recent meetings, we have been surprised by the extent to which actual productivity has slowed over the past six to eight months. We had been resisting a downward revision in our estimate of structural productivity on the expectation that we would imminently see a significant weakening in labor demand that would, in essence, suggest that more of the slowing was cyclical than appeared to be the case. But the tension just seemed to be growing greater over time. As I think Bill Wascher reported in his chart show back in January, our Kalman filter models have been suggesting a more substantial downward revision to structural productivity than we made even in this forecast. Some tension there remains, so we thought we needed to get a little better balance. At the same time, we have been surprised on the upside by the strength in labor force participation—in particular, the participation of workers 55 years old and older. So it felt as though we needed to make some minor adjustments here to get a little better balance of risk for both our labor force forecast and our productivity forecast.

Now, in August, when we get the annual revisions, we’re going to have a better idea of how much of the tension between the income side and the product side over the past year gets resolved in favor of the income side. In that case, maybe we have overreacted by making an adjustment, but it just felt at this point as though the shortfall of productivity relative to our structural productivity was so much greater than we could explain by normal cyclical behavior that we had to give at least a nod in the direction that maybe this was telling us something about slightly weaker structural productivity. I really wanted to wait until we received those figures in August, but it just seemed as though enough evidence against our forecast had accumulated that we needed at least, as I said, to nod in that direction.

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