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James Sogi Philosopher, Juris Doctor, surfer, trader, investor, musician, black belt, sailor, semi-centenarian. He lives on the mountain in Kona, Hawaii, with his family.

11/14/2005
Selected Quotes from Fed transcript From Nov. 1999, by James Sogi

1. It is likely that the higher house prices will show through at some point in the CPI through higher owners equivalent rents. And the price increases can themselves contribute to an inflationary psychology. Certainly, rising prices on reproducible assets like houses tend to spur more investment activity in the future and add to the general strength of demand--as may the increases in wealth enjoyed by the owners of the assets. (The argument that higher house prices cause inflation)
2. Mr. Stockton: President Jordan, based on our model, $5 a barrel more on oil prices over the forecast horizon would add roughly 1/4 percentage point to consumer price inflation in the next two years. (The argument that higher energy causes inflation)
3. The Japanese are continuously surprised by the strength in the numbers they are producing. (presaging the current turnaround in Japan)
4. Mr. Jordan: A frustration has been that some bankers--and maybe a few others, but it is particularly worrisome about bankers--think an increase in the federal funds rate will have an adverse effect on interest-sensitive industries such as housing and autos. It s a sort of interest rate push idea that a rise in the overnight interbank rate pushes up all interest rates and, therefore, will hurt real economic activity which they care about. If you say to them that if it turns out later that the funds rate was artificially held down and inflation accelerates and that is what really hurts housing and autos and other interest-sensitive sectors--because intermediate- and long-term interest rates will rise more because of inflation premiums--it falls on deaf ears. It is simply not a story that resonates well at all. I think our biggest problem, if it is necessary to tighten in order to contain rising inflationary pressures, is how we explain the rationale behind such an action and find people who support it and applaud it.
5. Mr. Poole: My FedEx and UPS contacts both reported recent increases in volume. (Carriers as pilotfish? Fedex price then 40's, price now 90's. Hmmm.)
6. First, on inflation targeting itself, one can get to it through a fairly logical progression. The idea of monetary targeting ran into difficulty because of shocks in liquidity demand. These shocks made it difficult to interpret the growth of the monetary aggregates. Did growth mean that the economy was overheating or simply that there was an upward shift in demand for liquidity? The next step was to move to nominal income targeting, an approach that many still favor. But again there are shocks, this time from productivity. If nominal income is growing rapidly, does that mean that the economy is overheating or simply that productivity has risen? Given these shocks, one might reasonably conclude that the central bank should target inflation directly. Inflation is what we are trying to stabilize, so we should just stabilize it. (Inflation targeting anticipated)

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Jim Sogi, May 2005

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