Transcript Philadelphia

District 3 - PHILADELPHIA
President – Charles I. Plosser
Presented by
Mallory Holden & Colette Dubicki
Charles I. Plosser
BEWARE
INFLATION HAWK!
State of the National Economy
 Decreased consumer spending
decreasing overall:
 Retail Sales
 Domestic Tourism
 Service Industry
 Increase in the input costs to produce
goods:
 Increasing prices of manufacturing and
retail goods
 Overall prices have increased
 Causing moderate pressure to increase
wages
 Real estate markets continue to appear
dim
 Inventory of homes remains high
 Financing is becoming harder to attain
 New construction has slowed
State of District 3’s Economy
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Manufacturers have experienced
a steady rate of business
• Several manufacturing industries
• Others reported an increase
Retail sales continue to fall
Auto sales have also decreased
In the financial market:
• Banks are limiting loans made for real estate
projects
• Credit quality has decreased
• Outstanding loans have increased
• Consumer lending has increased slightly
Residential real estate has shown some signs
of increase in home sales
• Inventory of houses on the market remains
high
• Commercial real estate has decreased
Prices have risen
• The price of imports has gone up.
• A reduction in expansion and business activity
Inflation in the National Economy
Headline
Inflation
Core
Inflation
Increased
by 0.6%
Increased
by 0.2%
The Job of the Fed

The Federal Reserve’s main responsibilities lie in
providing our nation with price stability and promoting
sustainable economic growth.

“Indeed, ensuring price stability is one of the most
important contributions a central bank can make toward
promoting sustainable economic growth”.

This is done by changing interest rates.

Remember: When you lower interest rates there is a
higher demand to hold money which in turn leads to
higher liquidity of money and higher inflation.
The Job of the Fed

The economy cannot constantly be stimulated for growth
since it has no long-term advantages.

It does not decrease unemployment nor increase output;
it just leaves us with higher levels of inflation which
hinders economic growth because:
– The change in prices are hard to determine why – whether it’s
for higher demand or just due to inflation
– It creates uncertainties about future inflation which makes
business reluctant to expand operations
– Fixed values become distorted
– It tends to redistribute wealth from lenders to borrowers
The Job of the Fed

More importantly, because everyone is combating their
time, energy, and resources against inflation, more
productive opportunities are missed. This is why price
stability is so important and why we must fight the
inflation that we are facing today.

“The best way for central banks to foster sustainable
economic growth and prevent instability is to keep
inflation under control”.

We must not have the public lose confidence in the Fed
as was the case in the 1970s otherwise it will be a
downward spiral.
The Job of the Fed

Remember: Monetary policy works with a
lag so we cannot depend on it to solve all
of our problems.

The markets will have to solve their own
problems which is going to take time, but
the Fed can help by promoting financial
stability.
What Should Be Done?

Raise the Federal Funds Rate 25 basis points
From 2% to…
How much should we
raise the Federal Funds
Rate?
This much!
2.25%
Statement
The state of the economy is weak, but slowly
looking optimistic. However, we cannot allow public
confidence to wane as was the case throughout the
70s. Otherwise this will put a damper on economic
growth. If the public is more concerned with inflation,
other, more productive measures are wasted.
 We cannot control the actions the market takes against
rising energy and food prices, but we can help by
ensuring price stability and restoring consumer
confidence.
 Business cycle trends are hard to predict or influence,
because productivity determines them, but in the long
run they equalize. The only way to influence them is by
allowing productivity to not be focused mainly on
inflation.

References
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Chatterjee, Satyajit. "Real Business Cycles: a Legacy of Countercyclical Policies." Federal Reserve Bank of
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<http://online.wsj.com/article/SB121327652195167793.html>.
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Reddy, Sudeep, and Phil Izzo. "The Dissent: Fisher Stands Alone." The Wall Street Journal 25 June 2008. 25 June
2008 <http://blogs.wsj.com/economics/2008/06/25/the-dissent-fisher-stands-alone/>.
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<http://online.wsj.com/article/SB120959818459057709.html>.
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<http://frbsf.org/publications/federalreserve/monetary/goals.html>.
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