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

Thank you, Mr. Chairman. The Tenth District economy actually has shown signs of some further modest weakening since the last meeting due partly, and only partly, to the war. Both retail sales and manufacturing activity have edged down, and tourism has been soft. Some of the reduction in tourism was very clearly related to the war. There were a lot of cancellations in the tourist areas of Colorado particularly. On the manufacturing side, just to give you a sense of recent developments, the year-over-year index for production derived from our manufacturing survey, after having reached a level of 12 in February, slipped to minus 4 in March and was minus 3 in April. The year-over-year index for new orders, however, was actually 8 in April, up from 4 in March. So it’s a mixed bag but is not very encouraging.

We have met with our Economic Advisory Council and some of our directors, and there is a mixed tone in their reports, with some modest optimism but quite a bit of “let’s wait and see.” There has been, of course, some further pickup in energy activity and some very modest moderation in private-sector layoff announcements. Consumers are in a little better mood since military operations in Iraq ended but remain basically cautious. Most businesses report that the end of the war has not affected their plans, meaning that they are still in somewhat of a wait-and- see mode. On the inflation front, wage and price pressures remain subdued, but firms are increasingly worried about the impact of insurance costs on their profit margins.

Let me turn to the national scene. The broad contours of our economic forecast have changed very little since our last meeting. Like the Greenbook, we expect modest growth in the second quarter followed by a rebound to trend growth in the second half and then greater than trend growth next year. For all the reasons outlined by others and in the Greenbook—monetary policy, fiscal policy, the strength in the financial system, falling oil prices, and so forth—demand should pick up. But in that context I’m aware that the recent news, as others have indicated, has been relatively disappointing. That’s partly the reason, which I understand, for taking the position that we should move now for insurance. Also, while I don’t necessarily think that the probabilities of deflation are as high as Dave outlined—depending on the model, one can get much lower probabilities—the fact of the matter is that accelerating inflation is not a near-term threat. I understand that also as one of the arguments for going ahead and easing now.

Having thought about that, though, I am more of the view that we ought to wait and see until June. A reason for that is spelled out in Part 2 of the Greenbook, in what I think is an important statement: “. . . we cannot yet discern whether the uncertainty that may have been restraining private spending has lifted.” We will know a little more about that in June. The second reason that I would put forward for waiting until June is that if we ease now—though depending on how much—I think the zero bound will move from an issue on which we get a general question from time to time to one of significant debate and discussion publicly. The nay sayers in various groups will be bringing that up because the funds rate would be that much lower and the zero bound that much closer. Moreover, we have an important discussion coming up in June on communication. Some of that will relate to the issue of the zero bound. So we will be in a better position to have clearer thoughts on how we as a Committee should talk about that going forward. I think there are legitimate questions as to how to discuss issues relating to the zero bound. While it may be easy to communicate that we can buy assets up the yield curve, there will be questions such as what we are targeting—reserves, an average rate, or whatever. I’d like to have a discussion of those issues by this Committee before we move to a more public realm on them. So I think that waiting until June has very little downside and it may position us well for a clearer view going forward from there. Thank you, Mr. Chairman.

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