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

Well, in our forecast we incorporated the view that the worst is past in this area. In fact we’d expect, with the gradual improvement in the pace of growth going forward, that corporate spreads would continue to narrow some over the next six quarters. In essence, there’s an increase in profitability and an improvement in overall activity as well as some waning of these effects that together should result in further compression of spreads.

As for the extent to which the governance issue is having an effect, one certainly hears lots of business people talk about the effects that the uncertainties and liabilities associated with corporate governance have had on their own activities and on their hesitance to take certain actions. I’m not quite sure how to interpret those comments, but we hear them often. So that would be another reason in our minds for this effect to last a little longer and to fade more slowly over the projection period. But that’s in effect trying to read the anecdotes. I couldn’t tell you how many tenths of a percentage point in equipment spending we’ve incorporated for that effect. But I think the corporate governance issues are part of our overall story of business hesitance, gloom, and uncertainty.

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