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

Thank you, Mr. Chairman. The tone of the reports that I’m getting from my business contacts in the Fourth District is positive, but it’s hardly reminiscent of the reports of robust growth that I was hearing earlier this year. Still, both order books and profits are reported to be fairly strong. Business leaders across a broad array of industries tell me that they expect to see steady sales growth through the end of 2004.

Despite these positive reports, business confidence remains less upbeat than order books and profits would appear to warrant. My contacts still say that, if the economy continues to grow and stays on its present course, they will persevere in their search for more productivity improvements rather than hire additional workers, at least for the foreseeable future. And this is perhaps still the most remarkable aspect of this expansion—the ability of businesses to continue to squeeze out more production with the same number of workers. It can’t persist, of course, but I’m beginning to wonder how long I’m going to keep saying that.

At a recent joint meeting of our boards from the three offices in the District, the directors made several observations about energy prices. Although most directors expect energy prices to retreat somewhat from their current high levels, they are basing their future business plans on energy prices that they expect will be higher than those of a year or two ago. In response to energy prices, though, several of our directors were commenting that they are adjusting—or at least trying through innovation to adjust—the composition of the products that they’re producing. They’re using innovations to develop products that are less energy-dependent.

The Fourth District economy, like the nation’s, seems to have a lot going for it except considerable employment growth. The incoming data, though, suggest to me that the risks we face remain balanced and may actually have narrowed a bit in their scope since the summer. By that I mean that the prospects for either a resumption of the exceptionally strong business expansion that we saw in the winter and spring or a slipping back to a tractionless recovery— both of which seemed possible in the summer—look considerably more remote to me this time. Similarly, the extreme inflation or disinflation outcomes seem to me less likely as well. In summary, I believe the economy is expanding at a sustainable rate, and I think we should continue with our plan to gradually remove our policy accommodation. Thank you, Mr. Chairman.

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