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Prospects for the Economyand Monetary Policy
Remarks by President William C Dudley at New York University's School Business
February 28, 2011
Remarks by President William C. Dudley at New York University s School Business, New York City
1
-4
-2
0
2
4
6
8
2000 2002 2004 2006 2008 2010
-4
-2
0
2
4
6
8
% Change – Annual Rate % Change – Annual Rate
Source: Bureau of Economic Analysis
Consumer Spending Rebounds in 2010Q4
Real Personal
Consumption Expenditures
2
20
25
30
35
40
45
50
55
60
65
70
75
2000 2002 2004 2006 2008 2010
20
25
30
35
40
45
50
55
60
65
70
75
Index, Above 50 = Expansion Index, Above 50 = Expansion
Source: Institute of Supply Management
ISM Manufacturing
New Orders
ISM Nonmanufacturing
New Orders
New Orders Rise Sharply
3
50
60
70
80
90
100
2006 2008 2010
50
60
70
80
90
100
Index, 1985 = 100 Index, 1966Q1 = 100
Source: University of Michigan
Consumer Sentiment Improving
University of Michigan
Consumer Sentiment Index
4
3
4
5
6
7
8
9
10
11
2000 2002 2004 2006 2008 2010
64.0
64.4
64.8
65.2
65.6
66.0
66.4
66.8
67.2
67.6
Percent Percent
Source: Bureau of Labor Statistics
Unemployment Rate
(left axis)
Participation Rate
(right axis)
Unemployment Rate Down in Recent Months But Still High
5
-800
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
400
2000 2002 2004 2006 2008 2010
-800
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
400
Change per Month, in Thousands Change per Month, in Thousands
Source: Bureau of Labor Statistics
Nonfarm Payroll Employment Growth Remains Sluggish
Note: Monthly Average of Quarterly Change.
6
4-Week Moving Average, in Thousands 4-Week Moving Average, in Thousands
Source: Department of Labor
Continuing Claims
(Left Axis)
Initial Claims
(Right Axis)
Unemployment Insurance Claims Declining
2000
2500
3000
3500
4000
4500
5000
5500
6000
6500
7000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
250
300
350
400
450
500
550
600
650
700
7
20
30
40
50
60
70
2000 2002 2004 2006 2008 2010
20
30
40
50
60
70
Index, Above 50 = Expansion Index, Above 50 = Expansion
Source: Institute of Supply Management
Manufacturing
Nonmanufacturing
ISM Employment Diffusion Indices Up in Recent Months
8
Household Financial Obligations Ratio Returns to Mid 1990s Level
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
19.0
1980 1985 1990 1995 2000 2005 2010
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
19.0
Percent of Disposable Personal Income Percent of Disposable Personal Income
Source: Federal Reserve Board
9
Lending Standards Begin to Ease but Remain Tight
-80
-60
-40
-20
0
20
40
60
80
100
2000 2002 2004 2006 2008 2010
-80
-60
-40
-20
0
20
40
60
80
100
Net Percentage Net Percentage
Source: FRB Senior Loan Officer Opinion Survey
Standards
Spreads
Banks Tightening Terms and
Standards for Business Loans to
Large and Mid-Sized Firms
10
% Change – 13-Week Annual Rate % Change – 13-Week Annual Rate
Source: Federal Reserve Board
C&I Loans on Bank Balance Sheets Beginning to Expand
-30
-20
-10
0
10
20
30
40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-30
-20
-10
0
10
20
30
40
C&I Loans: All Commercial Banks
11
Equity Prices Up Sharply Since Last Summer
1000
1050
1100
1150
1200
1250
1300
1350
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
1000
1050
1100
1150
1200
1250
1300
1350
Index, 1941-1943 = 100 Index, 1941-1943 = 100
Source: New York Times
Flash Crash Jackson
Hole
November
2nd FOMC
Fiscal
Compromise
S&P 500
12
Credit Spreads Narrow
100
150
200
250
300
350
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
100
150
200
250
300
350
Basis Points Basis Points
Source: Federal Reserve Board.
Flash Crash Jackson
Hole
November
2nd FOMC
Fiscal
Compromise
Aaa
Baa
Note: Spreads relative to the 10 year Treasury yield.
13
-15
-10
-5
0
5
10
15
2000 2002 2004 2006 2008 2010
-15
-10
-5
0
5
10
15
% Change – Year to Year % Change – Year to Year
Source: Bureau of Economic Analysis
Exports Expanding at a Robust Pace
Real Exports of Goods and Services
14
-5
-4
-3
-2
-1
0
1
2
3
4
5
2000 2002 2004 2006 2008 2010
-4
-3
-2
-1
0
1
2
3
4
Percentage Points Percentage Points
Source: Bureau of Economic Analysis
Net Exports Growth Contribution Unusually Large in 2010Q4
Net Exports Contribution to
Real GDP Growth
15
Single-Family Housing Starts Remain at Depressed Levels
0
2
4
6
8
10
2000 2002 2004 2006 2008 2010
0
2
4
6
8
10
Per 1,000 People Per 1,000 People
Source: Census Bureau
CA, AZ, NV, and FL
U.S. Total
U.S. Excluding Combined
States
Single-family Housing
Starts Relative To Population
16
Home Prices Under Renewed Downward Pressure
100
120
140
160
180
200
220
2000 2002 2004 2006 2008 2010
100
120
140
160
180
200
220
Index, January 2000 = 100 Index, January 2000 = 100
Includes Distressed
Sales
Excludes Distressed
Sales
Source: CoreLogic and Haver Analytics
CoreLogic National House Price Index
17
State & Local Government Sector Acting as Drag on Growth
0.95
1.00
1.05
1.10
1.15
1.20
1.25
-2 0 2 4 6 8 10 12 14 16 18 20
0.95
1.00
1.05
1.10
1.15
1.20
1.25
Quarters Since NBER PeakSource: Bureau of Economic Analysis
1973-75 Cycle
Current Cycle
Index, NBER Peak = 1.00 Index, NBER Peak = 100
1981-82 Cycle
1990-91 Cycle
2001 Cycle
Real State and Local Government
Consumption Expenditures & Gross
Investment
18
-1
0
1
2
3
4
5
2000 2002 2004 2006 2008 2010
-1
0
1
2
3
4
5
% Change – Year to Year % Change – Year to Year
Source: Bureau of Economic Analysis
Total
Core
Total and Core Inflation Below Desired Levels
PCE Deflator Inflation
19
-60
-40
-20
0
20
40
60
80
2000 2002 2004 2006 2008 2010
-60
-40
-20
0
20
40
60
80
% Change – Year to Year % Change – Year to Year
Source: Standard & Poor’s
Commodity Prices Up Sharply in Recent Months
Note: End of Month Data.
Goldman Sachs
Commodity Index
20
-1
0
1
2
3
4
2006 2007 2008 2009 2010 2011
-1
0
1
2
3
4
Percent Percent
Source: Federal Reserve Board
2-3 Years
Note: Carry-adjusted.
4-5 Years
5-10 Years February 24:
2.82
February 24:
2.65
February 24:
2.19
Inflation Expectations Well Anchored
TIPS Implied Inflation
21
65
70
75
80
85
2000 2002 2004 2006 2008 2010
65
70
75
80
85
Percent Percent
Source: Federal Reserve Board
Total Industry
Capacity Utilization Rate
Substantial Slack in the Industrial Sector
Long-Run
Average
22
Unemployment Rate High Relative to Job Vacancies
1.5
2.0
2.5
3.0
3.5
4.0
4.5
3 4 5 6 7 8 9 10 11
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Vacancy Rate (JOLTS) Vacancy Rate (JOLTS)
Source: Bureau of Labor Statistics; Şahin, Song, Topa, and Violante (2010)
Unemployment Rate
2007
Recession
December 2010
December 2000 – November 2007
Beveridge Curve
23
Typical Duration of Unemployment Is Now Quite Long
0
4
8
12
16
20
24
28
1970 1976 1982 1988 1994 2000 2006
0
10
20
30
40
50
Weeks
Source: Bureau of Labor Statistics
Median Duration of
Unemployment
(left axis)
Percent
Percent of Unemployed
for 27+ Weeks
(right axis)
24
Unit Labor Costs Falling Sharply
-2.5
0.0
2.5
5.0
1995 2000 2005 2010
-2.5
0.0
2.5
5.0
% Change – 8-Quarter Annual Rate % Change – 8-Quarter Annual Rate
Source: Bureau of Labor Statistics
Unit Labor Costs in the
Nonfarm Business Sector
25
0
100
200
300
400
500
600
1990 1994 1998 2002 2006 2010
0
100
200
300
400
500
600
Index, December 31, 1982 = 100 Index, December 31, 1982 = 100
Source: Standard & Poor’s
Commodity Prices on Uptrend Over Last Decade
GSCI Energy
GSCI Non-Energy
Note: End of Month Data.
26
1100
1200
1300
1400
1500
1600
1700
1800
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
1100
1200
1300
1400
1500
1600
1700
1800
1,000,000 Metric Tonnes 1,000,000 Metric Tonnes
Source: United States Department of Agriculture
Consumption
Production
Recent Spike in Agricultural Commodity PricesDue to Fall Off of Production, Low Inventories
Wheat, Corn, and Soybeans
27
Futures Markets Expect Many Prices to Fall
70
75
80
85
90
95
100
105
110
115
120
Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
70
75
80
85
90
95
100
105
110
115
120
Index, March 2011 = 100 Index, March 2011 = 100
Source: Chicago Board of Trade and Bloomberg Note: Data as of February 25, 2011.
Corn
Soybeans
Wheat
Futures Prices
28
0
2
4
6
8
10
12
14
16
18
20
1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
0
2
4
6
8
10
12
14
16
18
20
Percent Percent
Source: Bureau of Economic Analysis
Commodities a Relatively Small Shareof Consumer Spending
Food at Home
Energy
Share of
Personal
Consumption
Expenditures
29
5-10 Year Horizon TIPS Implied Inflation
2.00
2.25
2.50
2.75
3.00
3.25
3.50
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
2.00
2.25
2.50
2.75
3.00
3.25
3.50
Percent Percent
Source: Federal Reserve Board
Flash Crash Jackson
HoleNovember
2nd FOMC
Fiscal
Compromise
5-10 Year Horizon
TIPS Implied Inflation
30
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2007 2008 2009 2010 2011
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
2.5
Percent Percent
Source: Federal Reserve Bank of Philadelphia Survey of Professional Forecasters
Professional Forecasters’ Inflation Expectations Stable
SPF Median 10-year PCE Inflation Forecast
31
0
1
2
3
4
5
6
2000 2002 2004 2006 2008 2010
0
1
2
3
4
5
6
Percent Percent
Source: University of Michigan
75th Percentile
Median
Household Inflation Expectations Stable
25th Percentile
Michigan Survey Inflation Expectations:
5-10 Years Ahead
