Thank you, Mr. Chairman. I’m going to take your admonition seriously and say about the District economy that it continues to track the national economy quite closely, as it has throughout this recovery. I’m tempted to let it go at that, except there was a development yesterday that went largely unnoticed and is a cause for celebration. I’m sure you noticed it; the Minnesota Twins clinched the Central Division for the third consecutive year— demonstrating once again that a small market team can succeed. [Laughter]
When I think about the national economy, it seems to me that the evolution of the forecast this year has not been all bad. That’s not a ringing endorsement, I understand. We’re certainly looking at somewhat slower growth than I had anticipated earlier, but we’re also looking at a bit lower inflation than I had expected. Beyond that, it seems to me that, if we think about broad trends rather than meeting-to-meeting fluctuations in the data, changes in the forecast, and clouds that appear from time to time and then dissipate, we see the following: Growth last year was 4½ percent in real terms and is likely to be something like 4 percent this year. The unemployment rate has declined—perhaps not quite as much as measured, but it has declined. Inflation is low—and it’s certainly low in the historical context of most of the postwar period—and it seems likely to stay there. Moreover, I think the outlook is positive, and I say this for essentially two reasons. One is productivity, and the other is history. Although history obviously doesn’t repeat itself precisely, I think there is a message in the long expansions of the 1980s and the 1990s, which is that the economy is fundamentally resilient and fundamentally flexible. Expansions, once established, don’t terminate quickly. And from that perspective, I think we’re in good shape overall.
On the employment situation, the staff probably recalls that I’ve been skeptical about the employment forecast for some time. Now I find myself skeptical about the explanation pointing to a reluctance to hire. I guess I’m an outlier in this regard, but I must say that for quite some time no business person I’ve talked to has expressed anything special about his or her willingness or unwillingness to hire. My sense of the situation is that they’re making the same kinds of decisions they always make with regard to these kinds of issues. Now, if we mean by “reluctance to hire” that we can’t explain the slow improvement in employment, I agree with that. But I really don’t know that there’s anything special there.
Finally, with regard to our earlier discussion on exchange rates, I certainly don’t object to thinking about how that might play out and what our role might be. But as I think Karen observed, it doesn’t have to play out in a disorderly fashion. And it seems to me that, if we want to avoid the risk that movements in exchange rates could turn disorderly, we’re going to have to adhere to sound policies in any event.