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

Thank you, Mr. Chairman. Trends evident in the District economy for some time fundamentally are continuing. Specifically, employment is increasing moderately and steadily. Most components of aggregate demand are expanding, and I would note, in particular, strength in nonresidential construction. There has been no significant acceleration of inflationary pressures or of wage pressures. The housing sector is subdued, but the District data on sales and starts suggest stabilization, as do the national data. The data on the inventory of unsold homes perhaps are contradictory to that statement because there are still a lot of unsold properties; at least those data suggest that it will be some time before there is any pickup in housing activity. In any event, as Bill Dudley mentioned, mortgage delinquencies and foreclosures are rising, albeit starting from a fairly low level, and though that probably won’t have a significant effect on economic performance, it could be a political issue in Minnesota and elsewhere in the District.

As far as the national economy is concerned, it seems to me that the incoming data over the past several months underscore a couple of things. First, the data demonstrate, again, the underlying resilience of the economy. Second, they bolster the case for sustained growth over the next year or more, accompanied by steady to diminishing core inflation. Let me elaborate briefly on those observations. The economy apparently grew better than 3 percent in real terms again last year, despite the significant run-up in energy prices, the appreciable decline in housing activity, and problems in the domestic auto industry. As I think about the prospects for ’07, I see little in the broad scheme of things to suggest that overall real growth over the next year will be much different from that over the past year or, for that matter, much different from that experience from ’03 through ’05. It also seems to me that our earlier concerns about the possibility of a further acceleration of core inflation have diminished, largely on the basis of the incoming information on inflation, thereby through the process of elimination heightening the outlook for steady to declining core inflation. I actually think that case is pretty good, partly because some of the factors that boosted core inflation were transitory and partly because inflation expectations, as best I can judge, have remained well anchored. That’s the message I get, at least from financial markets, from labor markets, and from conversations with our directors, other business people, and so forth. So for me, overall the near-term to medium-term outlook both for real growth and for inflation is constructive. I’ll stop there.

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