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

Thank you, Mr. Chairman. I have to start by saying that it’s hard to compete with my colleague Richard Fisher, with his stable of contacts. I have perhaps just a slight amendment on Wal-Mart. My contact there said that he has observed in recent years a changing pattern of holiday shopping, with shoppers procrastinating and putting their shopping closer to Christmas, and that might have moved some sales from November to December; also the growth of the gift card business moved some of those sales into January. Those circumstances might explain a bit of what we’re seeing. He said that it looks as though the January same-store sales growth will come in at 2½ to 2¾ percent. I’m sure that’s consistent with Richard’s information. My contact points out that, although those numbers are a little better than what they had anticipated a month or two ago, they are still 200 basis points below the original plan, which was set about a year ago. For February their plan is 4½ percent, but he believes that anything north of 3 would be good performance. His view is that he doesn’t see a lot of momentum one way or another, that things are pretty steady, and that there’s been no particularly significant change in the situation.

My FedEx contact sees business as very steady. There was a very strong peak season, pretty much on projection. The one negative he sees is in the less-than-truckload business, and that confirms information coming directly from a trucking industry source as well. Basically, the outlook is good, steady, and very confident. As for capital expenditures, FedEx is expecting to have 15 percent above this fiscal year in the next fiscal year, which starts June 1. My contact does not see any particular labor market pressures. My UPS contact said that the company is cutting its cap-ex, and they are actually cutting capacity. He said that they are cutting out twelve flights, I think it was, that they had just added in June. The cuts are basically a consequence of a careful analysis of their express business, which showed that a lot of it is just unprofitable, particularly the shipping of packages to individual homes. They are renegotiating contracts with online retailers and mail order retailers, and they’re trying to shed some of that business.

My trucking industry contact says that things just don’t look very sound. Freight volume, which would be full truckloads, is actually off 4 percent year over year in January. Shipping rates are flat, but there are intense pressures from their clients to cut rates. Driver turnover is up because the drivers are not getting enough business to eat well, and so they are shopping around for other companies. So they are losing some drivers, but they’re not too worried because they have plenty of drivers at the moment. The intermodal business is holding up well, my contact said.

I’d like to just make one brief comment on the national outlook. I think it’s pretty clear, and it’s reflected around the table, that the outlook for real GDP is a bit stronger than it was at our December meeting, and depending on your perspective in reading the data, maybe the inflation picture is a bit better, too. But I would emphasize that, compared with past revisions of the outlook, these are really marginal and not material revisions. There hasn’t been any really big news here. We don’t want to get carried away with a flow of data that is only slightly stronger.

Let me also comment, along the same lines, about what has been going on with longer- term interest rates. At the time of our December meeting, the constant-maturity ten-year rate was 4.49. At least that’s what I have in my spreadsheet. On Friday, it was 4.88. There has been a lot of comment to that effect. I think that change is due partly to the string of marginally stronger news and partly to a change in the market’s assessment about our likely future behavior. The market has simply taken out the expectation of a rate cut in the near term. The market has looked again at where we are to a much greater extent than we ourselves have. Thank you.

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