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

Let me take those concerns in turn. First, with regard to the speed of adjustment of consumption to potential GDP—perhaps it is ironic, but our assumption is that we are the most ignorant ones in this little morality play; that households and businesses have been aware of the slower growth of potential GDP; and that, as far as households and businesses are concerned, what goes on in the basement of the BEA is utterly without consequence. You can see that as well, for example, in our leaving the stock market projection unrevised. Implicit in the way we have reacted to the news from the BEA is that households and businesses knew of the slower trajectory. Investors knew of the slower trajectory for potential GDP. It was we who were off in previously assuming an erroneously steep upward trend for potential GDP. It does change the error pattern: The pattern of errors over history is changed a bit, and at the margin, that sends us into the projection period with slightly different dynamics; but those are very small effects. (Sandy is alerting me that an important piece of news that we received was the weakness of disposable income growth in the second quarter.)

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