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

Thank you, Mr. Chairman. The economic picture unfolding in our region, like that for the nation, continues to be encouraging. Both the hard data and the accompanying commentary from merchants confirm that holiday sales were quite positive. We continue to see a changing mix of fortunes among traditional retailers, specialty retailers, discounters, and Internet shopping sites. Combined holiday sales exceeded last year’s by almost all accounts. The news from our important tourism industry continues to improve, with reports of record-breaking attendance for some District attractions and stronger hotel occupancy and bookings. Single-family residential housing markets in our region remain strong; and even in the depressed multifamily residential and commercial property sectors, vacancy rates seem to have peaked and are beginning to improve.

Business sentiment has decidedly improved across a wide range of business executives that I have talked with. That optimism and strong profits are being reflected in capital spending and capital spending plans. Interestingly, that spending is no longer just for cost savings opportunities or for equipment replacement; I am also hearing more reports of spending to expand capacity in selected cases because sales are strong. Trucking firms, in particular, have noted a significant turnaround in both hiring and truck orders. Our bank examiners report that large regional banks are seeing a measurable pickup in commercial loan demand, although that renewed activity is still more in the discussion stage than in actual loans booked. Negative reports are now coming mostly from struggling manufacturing industries such as petrochemicals and apparel.

The area of greatest risk and uncertainty in our regional picture over the near term is employment. While our region continues to lead the nation in employment growth, we have seen some falloff in the pace of that growth since the last meeting. That said, the two states that account for the lion’s share of the growth we are getting, Georgia and Florida, now have unemployment rates of only 4 percent and 4.7 percent, respectively. The largest employment gains remain in employment services, and not surprisingly the job category showing net job losses continues to be nondurables manufacturing.

At the national level, I think we have to be rather pleased with the trends we are seeing and expect to see in the composition of growth. I interpret the vast majority of recent high- frequency data to be very positive. To my mind, perhaps the most important reading since our last meeting is the confirmation of strong business profits and improved business confidence, which are now clearly translating into more investment spending and inventory rebuilding. That, in turn, should eventually contribute to some better job growth. Like many others who have already spoken, I see the extent and timing of job growth as probably the greatest short-term risk to our forecast. In fact, our own forecast is on the low side of the Greenbook and other forecasts. We are less sure that hiring will be as robust as others are expecting.

The greatest longer-term risk, in my view, is the large and growing fiscal imbalance. The better federal fiscal picture was an important contributor to our economic successes in the 1990s, supporting our ability to conduct monetary policy geared to controlling inflation. Fiscal imbalance, should it continue or worsen, may significantly complicate our longer-term policy choices. Overall, my near-term outlook does not differ greatly from that in the Greenbook, and the differences hold little significance for short-term policy, which I believe is about right for now. Thank you, Mr. Chairman.

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