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

Thank you, Mr. Chairman. My outlook for the economy, which is essentially for sustained growth near trend and for a modest diminution of core inflation over time, hasn’t changed appreciably. To be sure, I have marked down my forecast for this year, largely in recognition of reality—that is, the weak first quarter, and I anticipate some further sluggishness in the second quarter as well. But after that, I expect growth to accelerate to near trend. Underpinning that anticipated performance is productivity improvement of something like 2¼ percent a year or maybe a little less, and employment gains in the neighborhood of 0.6 to 0.8 percentage point per year. On the demand side, I expect sustained increases in consumer spending; in business investment, including structures; and in net exports. I don’t think the outlook for the housing sector has really changed appreciably recently, at least relative to what I had been expecting. Given that inventory levels were and are still high, I think that it will be some time before we see any meaningful improvement in residential construction. My confidence in this general view of the outlook is heightened by my interpretation of history. The economy grew 3 percent or better over the four years from 2003 through 2006. More important and more broadly, if you think about the performance of the economy over the past two and a half decades, it hasn’t been wise to make major bets against sustained, healthy growth. So that’s what I’m really expecting.

As for inflation, because I view the current stance of monetary policy as moderately restrictive—and the basis for that is some versions of the Taylor rule, estimates of the real federal funds rate relative to its equilibrium, and some rules of thumb that we have—I do expect that core inflation will gradually slow from here, assuming that we maintain the approximate stance of policy that we have adopted. I think that another reason is that some of the uptick in core inflation was transitory. I would add that, if you look at the latest three-, six-, and twelve-month increases in core CPI or core PCE, you do in fact see some waning of inflation. Of course, the waning is due in part to the favorable numbers we got in March, but it doesn’t appear to be exclusively due to the March numbers. In any event, if inflation is going to slow, it has to be in the latest numbers. [Laughter] I mean, there is no other way for that to occur. With that, I will conclude.

Keyboard shortcuts

j previous speech k next speech