Just off news scroll on Bloomberg terminal. Or type FED enter, and then 15 to see them.
It's probably on their website to somewhere.
Here's the entire speech. A quick search shows he didn't actually use the word "bubble," but I also don't see the word "ptotectionism" either and bloomberg quoted it in their scroll, so he may have taken questions after the speech and it came from that.
Page 1 of 6
BN 10:11 Text of Atlanta Fed President Guynn's Economic Outlook Speech
March 24 (Bloomberg) -- Following is the text of a speech by
Atlanta Federal Reserve Bank President Jack Guynn on the outlook
for the U.S. economy. Guynn spoke to the Center for Banking at
East Tennessee State University in Johnson City, Tennessee. His
text was provided by the Atlanta Fed.
I'm especially pleased to speak in an academic setting, at
the Center for Banking at East Tennessee State University.
Standing here this morning I find myself reflecting back on my
college days, which, as Steven just mentioned, were spent just up
Interstate 81 in Blacksburg, Virginia. I can remember the
excitement and, yes, the anxiety that those of you who are
students may be experiencing as you get ready to start your
careers.
After the record long period of economic expansion in the
late 1990s, the U.S. economy went through a ``soft patch,'' to
borrow a phrase from Fed Chairman Alan Greenspan. For the past
few years, manufacturing job losses have been especially hard on
many areas, including yours here in east Tennessee, where
offsetting jobs gains have been somewhat slow to materialize. But
the U.S. economy is now improving and changing, with new
opportunities emerging, particularly in banking, finance, health
care and other service industries.
To the students here who will soon be joining an
increasingly global workforce, I would suggest it's a good idea
to stay flexible and build your career for the long term so that
you're able to adjust to the inevitable changes that will come
along over the course of your career. No matter where you go, I'm
sure you'll find the investment you've made in your education
will pay off immeasurably.
I understand some business people also are here this
morning. Whether you're a student preparing to enter the
workforce or you're sitting across the desk as an employer, one
of the things we all have in common is the importance of
understanding the economic environment we face together. My plan
over the next few moments is to share with you my outlook for the
U.S. economy. And, speaking for myself as a participant on the
Federal Open Market Committee, I want to say a few words about
the role of monetary policy in helping to reach our broad goals
for the economy in this time of unusually low interest rates.
2004 economic outlook
This is an opportune time to assess the economy. We're
nearly three months into 2004, and there now appears to be a
clearer pattern of solid and sustainable growth. According to the
latest available numbers, 2003 turned out to be a pretty good
year, economically speaking, with year-over-year gross domestic
product growth (GDP) of about 4.3 percent. To put the situation
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in context, output growth in 2003 was better than the 3.6 percent
average rate during the historic expansion of the 1990s.
While last year's economic momentum appears to be carrying
forward, I expect the composition of growth to be somewhat
different in 2004. Residential investment and consumer spending
on durable goods - cars, refrigerators, furniture and other kinds
of items that are sensitive to interest rates - shouldered a
disproportionately large share of last year's overall growth. And
it's clear that low interest rates, tax cuts and tax refunds
helped to fuel spending by households. While I see no reason to
expect a sharp falloff in housing and durable goods spending this
year, I don't think we can expect to see these sectors continue
to grow at the rates we saw in some quarters last year.
So far this year, early indications are that business
investment spending will be stronger and may account for a larger
proportion of overall growth. Renewed business investment is
vital because it plants the seeds for future growth in
productivity, output and employment. The key to robust investment
spending lies in corporate profits, which are the major source of
funding for investment.
Corporate profits have been remarkably strong in recent
quarters - growing 21 percent and an estimated 28 percent year
over year in the third and fourth quarters of 2003, respectively.
Analysts at First Call, a financial information company, are
estimating an increase of about 15 percent year over year during
the first half of 2004. Businesses have been more profitable in
large part because they cut costs relentlessly and in many
industries have worked off much of the excess capacity from the
late 1990s. But more recently there are signs that demand growth
is beginning to help boost profits as well.
You might recall that rising business investment spending in
the latter half of the 1990s spurred the acceleration of growth
in output and employment. With that investment also came
extraordinary acceleration in productivity. What's been unusual
is that productivity growth actually picked up during the 2001
recession and continues today. I'll talk more about productivity
in a moment, but at this point I want to stress that business
investment is once again playing a critical role in our recovery,
and its recent resurgence suggests the entrepreneurial spirit
that is so important to growth remains alive and well.
Looking for job growth
While businesses now have become aggressive again when it
comes to upgrading equipment, they remain cautious when it comes
to human capital. By far the biggest disappointment in our still
unfolding economic recovery remains job growth. Historically,
employment growth has lagged an upturn in the economy coming out
of a recession, and we clearly saw that trend after the previous
recession in 1990-91. But this time the lag is turning out to be
even longer. The payroll numbers finally turned positive in
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September 2003 and have held that positive tone marginally
through February. During the past six months, the U.S. economy
managed to add a total of 364,000 jobs, averaging about 61,000
new payroll jobs per month.
Our FOMC statement from last week noted that ``new hiring
has lagged.'' Yet, even with weak job growth and the constant
influx of new job seekers, the current unemployment rate of 5.6
percent is lower than it was at this same point in the recovery
from the previous recession in 1990-91. And the unemployment rate
is slightly below the average unemployment rate we experienced
over the decade of the 1990s.
But I think it's important to acknowledge that part of the
reason for the relatively low unemployment rate is the recent
decline in the rate of participation in the labor market, which
was on an upward trend in the 1990s. Indeed, labor force
participation in February of this year was at its lowest level
since 1988. People have left the labor market for various
reasons, such as continuing education or retraining. And there's
an increasing percentage of people who have become discouraged
about near-term job prospects.
As we try to understand today's murky employment picture, I
think it's helpful to think about how productivity continues to
reshape our labor markets. Simply put, if output per worker hour
is increasing faster than final demand there is less pressure to
add to the workforce.
Productivity gains have touched many sectors of the economy,
but perhaps none more so than manufacturing. Average labor
productivity growth in U.S. manufacturing is higher than most
other sectors of the economy, because many of the jobs are easily
automated. And as we have observed in recent decades, and
especially over the last few years, production has shifted to
other regions of the world where labor costs and productivity are
relatively low. Going forward, I expect that manufacturers will
continue to leverage new technology to control costs and operate
more efficiently. I'm willing to venture that a decade from now,
when all of you students here are established in your careers,
we'll see a much higher value of manufacturing output in the
United States, but the actual number of manufacturing jobs might
not have returned to levels we saw before the 2001 recession.
In contrast, the service-producing sectors of the economy,
such as education, health care, tourism, and so on, tend to
require the addition of more people as service demand increases.
As a result, growth in services tends to translate fairly
directly into increased demand for labor. So, as you might
expect, much of the job growth over the past two years has been
in service-producing industries.
I think that ongoing gains in labor productivity could act
to constrain the overall pace of new hiring for a little while
longer - but not indefinitely.
Although it's difficult to judge when we'll see a
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significant broad pickup in new job creation, there's evidence
some businesses are beginning to expand payrolls and final demand
is growing. For instance, we're seeing some businesses starting
to rebuild inventories. And the economies of many of our trading
partners are now improving nicely, so exports appear poised to
grow further after a strong fourth quarter. Overall, I think 2004
will be another good year for the U.S. economy.
Importance of low inflation
One of the main reasons I'm optimistic about the outlook for
the economy is low inflation. Low inflation ushered in the era of
high productivity growth in the 1990s that I mentioned earlier,
and it continues to drive innovation in subtle ways. For example,
low inflation allows firms to focus on long-run projects, raising
real returns because investments are allowed ample time to bear
fruit. One of the Fed's goals with regard to inflation is to
remove it as a factor in the economy so that you don't have to
think about it or adjust your plans because of large and
unexpected changes in inflation or interest rates.
But, as a practical matter, monetary policy sometimes can
help to ease the adjustment process when unforeseen shocks hit
the economy or a downturn occurs. I expect most of you remember
the Fed intervened aggressively beginning in 2001. There were 13
policy-easing moves in all that brought the fed funds target rate
from 6-1/2 percent in mid-2000 to its present and unusually low
rate of 1 percent. The evidence is pretty convincing that these
actions helped to measurably ease the pain of a weak economy.
Certainly, lower interest rates have bolstered interest-sensitive
sectors like housing and consumer durables. And the strength in
those sectors helped to keep the recession, at least as measured
by GDP growth, both short and shallow.
In large part, the Fed was able to ease policy decisively
because of low inflation. For the past two years, core inflation
has declined consistently to where it now hovers just above 1
percent, at the lowest rate since the 1960s. In contrast to the
erratic and troublesome inflationary period of the 1970s, our
economy now has a track record of low and stable inflation. And
the general expectation is that low inflation will continue
because the Fed is perceived to be committed to a long-term
policy of price stability.
But price stability does not mean that prices won't change.
Some prices will increase at the same time others decrease.
Recently, I've heard anecdotal reports of increased prices in
service industries such as trucking, tourism and auditing. And as
you probably have noticed, health care and insurance prices have
been rising for some time now.
On the commodity side, prices for steel and other metals
have risen sharply in recent months, and the prices of some
finished goods dependent on these inputs have been increasing as
well. In addition, energy prices have moved up, leading to higher
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costs for fuel, chemicals and fertilizers, among other items.
As a central banker, my focus is on avoiding conditions that
contribute to persistent and widespread price increases across
sectors. At this time, I do not believe the kinds of isolated
price increases I have just described threaten low overall
inflation. But, as always, I think it's important to watch price
developments.
The role for monetary policy 1
We've seen how accommodative monetary policy can cushion the
downside of an economic cycle, and policy has been especially
accommodative for a while now. The steep interest rate cuts of
2001 and 2002 were not neutral monetary policy; rates were
reduced in response to a substantially weakened economy. As the
economy returns to more normal rates of growth, market interest
rates should adjust in response to more robust conditions and
policy will need to adjust as well.
I expect the Fed's accommodative policy, and the low
interest rates it has helped to engender, is popular with many in
this room. Following last week's FOMC meeting, our statement
again concluded by saying, ``the Committee believes it can be
patient in removing its policy accommodation.'' Yet as rates
remain low and I think about the future path of policy, I remind
myself it is also important to watch for unintended consequences
of keeping monetary policy too accommodative for too long.
Indeed, some of my contacts in various industries have stressed
to me that at some point it will be appropriate, and helpful, to
allow interest rates to return to more normal levels so that
markets can sort themselves out in an orderly way and return to
balance.
Put another way, just as I don't want concerns about future
inflation to play a major role in business decision-making, I
also don't want businesses to build their plans on expectations
of a continuation of accommodative monetary policy without regard
to prospective economic conditions or the necessary policy
changes that may need to accompany them.
To illustrate what I'm talking about, let me tell you about
my son, Mike, who has been developing lots for residential
builders in the Atlanta area since 1997. If I think about the
years Mike has been in residential real estate, I realize he has
not seen a downturn in the business and in fact has been riding
the wave of low mortgage rates and historic rates of home
building. As you might guess, Mike and I have had some
interesting father-son talks about the seductive lures of such an
extraordinary period. I think, at least I hope, Mike understands
that, as rates move back to more typical levels at some point,
some part of his business may be vulnerable - that part induced
by temporarily low rates alone. I hope he and others in business
have not assumed in their long-term plans that this extraordinary
period will continue indefinitely.
Another way to think about our monetary policy situation is
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in medical terms. When a patient is seriously ill, the situation
may call for prescribing a strong dose of medication. As the
patient begins to recover, however, there is a need to
recalibrate the dosage or to stop prescribing it entirely to
avoid potential side effects.
Of course, as I mentioned earlier, our prompt response in
2001 to an emerging economic downturn, and the strong dose of
monetary policy easing we administered, was appropriate. But just
as a doctor shouldn't overmedicate the patient, one should always
be sensitive to the potential for creating imbalances, which
could be costly to correct. The same concerns apply to monetary
policy. Over the longer run, I believe that monetary policy works
best when it stays out of the way of the real work of building
and growing our economy.
Given disappointing employment growth, slack resource use
and muted increases in core consumer prices, the Fed has good
reason to maintain its accommodative policy, at least for now.
But if my forecast for more robust economic growth materializes,
then, at some point, a fed funds rate of 1 percent will no longer
be the best policy.
Getting to balanced growth and reasonable expectations
I began my remarks with an optimistic 2004 outlook for the
U.S. economy. And I've shared my views as to why we have reason
to expect more balanced growth ahead. I've addressed the role of
monetary policy in cushioning a recessionary period and have
cited the evidence that low rates have worked well in this
economic cycle. I've also said it's important to eventually
return to more normal interest rates as the economy gains
strength.
Perhaps most importantly, I've tried to emphasize that low
and stable inflation, and the dynamic business climate it
engenders, has fueled many of the gains that we've enjoyed, from
high productivity to continued strength in housing.
It is indeed a luxury to have an inflation environment in
which policymakers can be patient in ensuring the economy has
gained a solid footing. That said, luxury comes with a price tag,
and patience is not unlimited. The old truism that ``there's no
such thing as a free lunch'' applies today, as always.
The same advice I offered earlier to the students here - to
stay flexible and forward looking - I think applies to all of us,
as individuals, business leaders and policymakers. While we
should keep one eye on today's issues and challenges, we should
also look ahead for the path that leads to the best outcome over
the longer term.
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