Thank you, Mr. Chairman. Like Bill Poole, in searching for words that describe developments since our last meeting I kept coming back to “ho-hum.” We’ve had some mixed readings, as is almost always the case, but no really big positive or negative surprises. And maybe, just maybe, we should allow ourselves to be pleased with that. I’m generally comfortable with the most likely path and composition of output and spending laid out in the Greenbook. If we get 3½ to 4 percent growth over the next several quarters, we should continue to make gradual progress on pushing the unemployment rate lower, and those sectors where the recovery has lagged should show improvement.
I also would not quibble with the conclusion that recent inflation data suggest no immediate threat of a troublesome run-up in broad price indexes. While I don’t want to do anything to reinforce the label that Al Broaddus gave me at his farewell lunch as the remaining “hawk” in the group, I would point out that some mainstream outside inflation forecasts still have a decidedly upward tilt. When it comes time to choose the words for our statement today, I hope we will resist the option of using language that gives too much emphasis too quickly to the last couple of months of better inflation data.
Perhaps the most interesting dimension to our most recent economic data and our projections for coming quarters is in the area of employment and the labor markets. We spent a good bit of time in preparation for this meeting thinking through some of the same possibilities that are addressed in the Greenbook’s “less room to grow” alternative scenario. My labor economists concluded that, if the recent decline we’ve seen in the labor force participation rate is permanent—and making certain other assumptions about population growth and immigration—it seems entirely possible that employment growth in the range of only 100,000 per month, on average, would be sufficient to maintain the unemployment rate at its current level. We’ve done better than that recently and, hence, the continued decline in the unemployment rate. This job growth is far below the heady claim of the Council of Economic Advisers now on everyone’s mind that the tax cuts would create 300,000 new jobs per month. It is also far below the job growth incorporated in the Greenbook’s baseline projection for 2005. I make these points only to suggest that, as is the case with many of the other variables with which we work, there are probably sizable error bands around our estimates of future job growth. And those estimates could have important implications for the notions of slack, the room our economy has to grow, and ultimately price pressures.
Developments in our region don’t shed much light on policy issues today. My director from the corporate executive office of UPS in Atlanta, their chief financial officer, characterized the growth in their business as relatively solid though not quite as strong as earlier in the year. And members of the small business advisory group that I met with last week reported some of the same spottiness and uneasiness that has shown through in other sources of information. Reports from our contacts note that, while the effects of the three hurricanes that hit our area were severe in the affected areas and will likely show through in some of the state level data, the economic disruptions are expected to be short-lived. Higher insurance deductibles and adequate flood coverage may have a negative impact on consumer spending in the short run, but we know from past experience that reconstruction outlays will probably make up for the temporary slowdown. Damage to agricultural areas may take a while longer to mend, and fortunately, this is a traditionally slow time of the year for tourism in Florida.
Looking ahead to policy considerations, as we almost all have come to do, I think recent developments have met the hurdle for staying on the policy path embraced at our last meeting. Assuming things continue to unfold in roughly the manner described in the Greenbook forecast, I hope we will stay on the path of gradually removing more of the policy accommodation. I think we should give considerable weight to the possibility of unintended consequences and distortions in resource allocation from policy stimulation that remains in place for an extended period of time. Should we at some point find that the economy has less room to grow than we thought and inflationary pressures begin to build, in my view we will be in a better position if we have gotten to a more neutral policy setting. Thank you, Mr. Chairman.