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

Thank you, Mr. Chairman. Two or three developments in the District economy are worth noting, and they seem consistent, by the way, with what’s happening at the national level. First, overall, the labor markets, excluding construction, appear to be continuing to improve. Hiring is expanding, and the availability of jobs appears to be growing. Some of that growth is no doubt seasonal, but my impression is that it goes beyond the typical seasonal increase of this time of year. Second, housing sales of both new and existing homes appear to be stabilizing in year-over-year comparisons. That is clearly a favorable development. However, I think the adjustment in residential construction activity likely still has some considerable distance to go. Numerous projects are under way; many of them are in midstream. So the inventory of unsold homes, particularly of condominiums, is likely to remain high for the foreseeable future, and I think the implication is that no sizable new projects will be getting under way any time soon.

As far as the national economy is concerned, I agree with the pattern in the Greenbook of gradually improving growth in economic activity after the current and perhaps the next quarter. But I continue to expect such growth to be a bit higher than expressed in the Greenbook for the reasons I’ve cited recently—sustained gains in employment, rising equity values, lower energy prices, moderate interest rates, and overall generally sound financial conditions. Similarly, I wouldn’t quarrel very much with the Greenbook trajectory as far as it pertains to core inflation. I think that, if this outlook is achieved, the outcome would not be at all bad, particularly if inflation diminishes a bit more quickly than it does in the forecast. Unfortunately it’s hard at the moment to see the precursors of such a development, and the lower dollar is not likely to help. However, I’m not alarmed by the unemployment rate at 4½ percent, and I wonder if we’re getting another test of the ex-ante value of the NAIRU in forecasting inflation. [Laughter]

As to the risks to economic growth, some of the recent data, although not those pertaining to the labor market, have been on the soft side relative to my expectation. The persistent inversion of the Treasury yield curve has my attention as well, perhaps belatedly. But it’s hard to know with any confidence what to make of the latter factor, given hypotheses about saving gluts, asset shortages, and so forth. Moreover, other approaches beyond analysis of the yield curve to estimate the probability of recessions generally provide figures that are quite low. The underlying resilience of the economy adds to my confidence that business activity is likely to improve rather than deteriorate from here. I would add that I am not hearing any of the negative anecdotes that I heard in late 2000 before the onset of the 2001 recession. Thank you.

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