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

I’d say that in our last forecast the war-related uncertainties were just a part of what we saw as a much broader set of concerns and uncertainties about the economic outlook that were helping to hold back P&E spending. So we hadn’t bet a lot on the end of the war being a major source of upward impetus to such spending. As I indicated, in general the data have been a little softer on the capital spending side, not dramatically so but enough on the core component—the non-high-tech, nontransportation component—that we just didn’t see signs that capital spending would move up as rapidly as we had in the last forecast. Second, some of the revisions that we made to the second half of the year had less to do with the actual data we were seeing on the various spending categories and more with what we were seeing on the production and employment side. The latter in essence suggested that overall demand was likely to be weaker than we had anticipated. For that reason we put in some reduction in our forecast of equipment spending and also took some out of consumption. It is our view that to date overall activity in the first half of this year is fundamentally softer than we had estimated at the time of the last forecast. We are starting off at a lower base moving forward.

As I said in my remarks, because we have leaned on the employment and production data fairly heavily, it’s possible that we have overreacted by still trying to disentangle what are and what aren’t war-related effects on the production and the employment sides. It could be that those effects have been bigger and that we’re somehow misreading that as an indication of fundamental weakness. But in general I’m comfortable with the balance of risks that we have in this forecast.

Keyboard shortcuts

j previous speech k next speech