Friday, February 29, 2008

FEDERAL BANK CHIEF REPORT TO CONGRESS 2008-2009 OUTLOOK!!**++


Monetary Policy Report submitted to the Congress on February 27, 2008, pursuant to section 2B of the Federal Reserve Act
Part 4
Summary of Economic Projections
The following material appeared as an addendum to the minutes of the January 29–30, 2008, meeting of the Federal Open Market Committee.
In conjunction with the January 2008 FOMC meeting, the members of the Board of Governors and the presidents of the Federal Reserve Banks, all of whom participate in the deliberations of the FOMC, provided projections for economic growth, unemployment, and inflation in 2008, 2009, and 2010. Projections were based on information available through the conclusion of the January meeting, on each participant's assumptions regarding a range of factors likely to affect economic outcomes, and on his or her assessment of appropriate monetary policy. "Appropriate monetary policy" is defined as the future policy that, based on current information, is deemed most likely to foster outcomes for economic activity and inflation that best satisfy the participant's interpretation of the Federal Reserve's dual objectives of maximum employment and price stability.
The projections, which are summarized in table 1 and chart 1, suggest that FOMC participants expected that output would grow at a pace appreciably below its trend rate in 2008, owing primarily to a deepening of the housing contraction and a tightening in the availability of household and business credit, and that the unemployment rate would increase somewhat. Given the substantial reductions in the target federal funds rate through the January FOMC meeting as well as the assumption of appropriate policy going forward, output growth further ahead was projected to pick up to a pace around or a bit above its long-run trend by 2010. Inflation was expected to decline in 2008 and 2009 from its recent elevated levels as energy prices leveled out and economic slack contained cost and price increases. Most participants judged that considerable uncertainty surrounded their projections for output growth and viewed the risks to their forecasts as weighted to the downside. A majority of participants viewed the risks to the inflation outlook as broadly balanced, but a number of participants saw the risks to inflation as skewed to the upside.
Table 1: Economic Projections of Federal Reserve Governors and Reserve Bank Presidents(Percent)

2008
2009
2010
Central Tendency1
Growth of real GDP
1.3 to 2.0
2.1 to 2.7
2.5 to 3.0
October projections
1.8 to 2.5
2.3 to 2.7
2.5 to 2.6
Unemployment rate
5.2 to 5.3
5.0 to 5.3
4.9 to 5.1
October projections
4.8 to 4.9
4.8 to 4.9
4.7 to 4.9
PCE inflation
2.1 to 2.4
1.7 to 2.0
1.7 to 2.0
October projections
1.8 to 2.1
1.7 to 2.0
1.6 to 1.9
Core PCE inflation
2.0 to 2.2
1.7 to 2.0
1.7 to 1.9
October projections
1.7 to 1.9
1.7 to 1.9
1.6 to 1.9
Range2
Growth of real GDP
1.0 to 2.2
1.8 to 3.2
2.2 to 3.2
October projections
1.6 to 2.6
2.0 to 2.8
2.2 to 2.7
Unemployment rate
5.0 to 5.5
4.9 to 5.7
4.7 to 5.4
October projections
4.6 to 5.0
4.6 to 5.0
4.6 to 5.0
PCE inflation
2.0 to 2.8
1.7 to 2.3
1.5 to 2.0
October projections
1.7 to 2.3
1.5 to 2.2
1.5 to 2.0
Core PCE inflation
1.9 to 2.3
1.7 to 2.2
1.4 to 2.0
October projections
1.7 to 2.0
1.5 to 2.0
1.5 to 2.0
Note: Projections of the growth of real GDP, of PCE inflation, and of core PCE inflation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures and the price index for personal consumption expenditures excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant's projections are based on his or her assessment of appropriate monetary policy.
1. The central tendency excludes the three highest and three lowest projections for each variable in each year. Return to table
2. The range for a variable in a given year includes all participants' projections, from lowest to highest, for that variable in that year. Return to table
Chart 1: Central Tendencies and Ranges of Economic Projections*
*See notes to Table 1 for variable definitions. Accessible version of chart 1 Return to chart 1
The OutlookThe central tendency of participants' projections for real GDP growth in 2008, at 1.3 to 2.0 percent, was considerably lower than the central tendency of the projections provided in conjunction with the October FOMC meeting, which was 1.8 to 2.5 percent. These downward revisions to the 2008 outlook stemmed from a number of factors, including a further intensification of the housing market correction, tighter credit conditions amid increased concerns about credit quality and ongoing turmoil in financial markets, and higher oil prices. However, some participants noted that a fiscal stimulus package would likely provide a temporary boost to domestic demand in the second half of this year. Beyond 2008, a number of factors were projected to buoy economic growth, including a gradual turnaround in housing markets, lower interest rates associated with the substantial easing of monetary policy to date and appropriate adjustments to policy going forward, and an anticipated reduction in financial market strains. Real GDP was expected to accelerate somewhat in 2009 and by 2010 to expand at or a little above participants' estimates of the rate of trend growth.
With output growth running below trend over the next year or so, most participants expected that the unemployment rate would edge higher. The central tendency of participants' projections for the average rate of unemployment in the fourth quarter of 2008 was 5.2 to 5.3 percent, above the 4.8 to 4.9 percent unemployment rate forecasted in October and broadly suggestive of some slack in labor markets. The unemployment rate was generally expected to change relatively little in 2009 and then to edge lower in 2010 as output growth picks up, although in both years the unemployment rate was projected to be a little higher than had been anticipated in October.
The higher-than-expected rates of overall and core inflation since October, which were driven in part by the steep run-up in oil prices, had caused participants to revise up somewhat their projections for inflation in the near term. The central tendency of participants' projections for core PCE inflation in 2008 was 2.0 to 2.2 percent, up from the 1.7 to 1.9 percent central tendency in October. However, core inflation was expected to moderate over the next two years, reflecting muted pressures on resources and fairly well-anchored inflation expectations. Overall PCE inflation was projected to decline from its current elevated rate over the coming year, largely reflecting the assumption that energy and food prices would flatten out. Thereafter, overall PCE inflation was projected to move largely in step with core PCE inflation.
Participants' projections for 2010 were importantly influenced by their judgments about the measured rates of inflation consistent with the Federal Reserve's dual mandate to promote maximum employment and price stability and about the time frame over which policy should aim to attain those rates given current economic conditions. Many participants judged that, given the recent adverse shocks to both aggregate demand and inflation, policy would be able to foster only a gradual return of key macroeconomic variables to their longer-run sustainable or optimal levels. Consequently, the rate of unemployment was projected by some participants to remain slightly above its longer-run sustainable level even in 2010, and inflation was judged likely still to be a bit above levels that some participants judged would be consistent with the Federal Reserve's dual mandate.
Risks to the Outlook
Most participants viewed the risks to their GDP projections as weighted to the downside and the associated risks to their projections of unemployment as tilted to the upside. The possibility that house prices could decline more steeply than anticipated, further reducing households' wealth and access to credit, was perceived as a significant risk to the central outlook for economic growth and employment. In addition, despite some recovery in money markets after the turn of the year, financial market conditions continued to be strained--stock prices had declined sharply since the December meeting, concerns about further potential losses at major financial institutions had mounted amid worries about the condition of financial guarantors, and credit conditions had tightened in general for both households and firms. The potential for adverse interactions, in which weaker economic activity could lead to a worsening of financial conditions and a reduced availability of credit, which in turn could further damp economic growth, was viewed as an especially worrisome possibility.
Regarding risks to the inflation outlook, several participants pointed to the possibility that real activity could rebound less vigorously than projected, leading to more downward pressure on costs and prices than anticipated. However, participants also saw a number of upside risks to inflation. In particular, the pass-through of recent increases in energy and commodity prices as well as of past dollar depreciation to consumer prices could be greater than expected. In addition, participants recognized a risk that inflation expectations could become less firmly anchored if the current elevated rates of inflation persisted for longer than anticipated or if the recent substantial easing in monetary policy was misinterpreted as reflecting less resolve among Committee members to maintain low and stable inflation. On balance, a larger number of participants than in October viewed the risks to their inflation forecasts as broadly balanced, although several participants continued to indicate that their inflation projections were skewed to the upside.
The ongoing financial market turbulence and tightening of credit conditions had increased participants' uncertainty about the outlook for economic activity. Most participants judged that the uncertainty attending their January projections for real GDP growth and for the unemployment rate was above typical levels seen in the past. (Table 2 provides an estimate of average ranges of forecast uncertainty for GDP growth, unemployment, and inflation over the past twenty years.14)In contrast, the uncertainty attached to participants' inflation projections was generally viewed as being broadly in line with past experience, although several participants judged that the degree of uncertainty about inflation was higher than normal.
Table 2: Average Historical Projection Error Ranges(Percentage Points)

2008
2009
2010
Real GDP1
±1.2
±1.4
±1.4
Unemployment rate2
±0.5
±0.8
±1.0
Total consumer prices3
±1.0
±1.0
±0.9
Note: Error ranges shown are measured as plus or minus the root mean squared error of projections that were released in the winter from 1986 through 2006 for the current and following two years by various private and government forecasters. As described in the box "Forecast Uncertainty," under certain assumptions, there is about a 70 percent probability that actual outcomes for real GDP, unemployment, and consumer prices will be in ranges implied by the average size of projection errors made in the past. Further information is in David Reifschneider and Peter Tulip (2007), "Gauging the Uncertainty of the Economic Outlook from Historical Forecasting Errors," Finance and Economics Discussion Series #2007-60 (November).
1. Projection is percent change, fourth quarter of the previous year to fourth quarter of the year indicated. Return to table
2. Projection is the fourth quarter average of the civilian unemployment rate (percent). Return to table
3. Measure is the overall consumer price index, the price measure that has been most widely used in government and private economic forecasts. Projection is percent change, fourth quarter of the previous year to the fourth quarter of the year indicated. The slightly narrower estimated width of the confidence interval for inflation in the third year compared with those for the second and first years is likely the result of using a limited sample period for computing these statistics. Return to table
Diversity of Participants' ViewsCharts 2(a) and 2(b) provide more detail on the diversity of participants' views. The dispersion of participants' projections for real GDP growth was markedly wider than in the forecasts submitted in October, which in turn were considerably more diverse than those submitted in conjunction with the June FOMC meeting and included in the Board's Monetary Policy Report to the Congress in July. Mirroring the increase in diversity of views on real GDP growth, the dispersion of participants' projections for the rate of unemployment also widened notably, particularly for 2009 and 2010. The dispersion of projections for output and employment seemed largely to reflect differing assessments of the effect of financial market conditions on real activity, the speed with which credit conditions might improve, and the depth and duration of the housing market contraction. The dispersion of participants' longer-term projections was also affected to some degree by differences in their judgments about the economy's trend growth rate and the unemployment rate that would be consistent over time with maximum employment. Views also differed about the pace at which output and employment would recover toward those levels over the forecast horizon and beyond, given appropriate monetary policy. The dispersion of the projections for PCE inflation in the near term partly reflected different views on the extent to which recent increases in energy and other commodity prices would pass through into higher consumer prices and on the influence that inflation expectations would exert on inflation over the short and medium run. Participants' inflation projections further out were influenced by their views of the rate of inflation consistent with the Federal Reserve's dual objectives and the time it would take to achieve these goals given current economic conditions and appropriate policy.
Chart 2(a): Distribution of Participants' Projections (percent)*
*Accessible version of chart 2(a) Return to chart 2(a)
Chart 2(b): Distribution of Participants' Projections (percent)*
*Accessible version of chart 2(b) Return to chart 2(b)
Forecast Uncertainty
The economic projections provided by the members of the Board of Governors and the presidents of the Federal Reserve Banks help shape monetary policy and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts are necessarily imperfect descriptions of the real world. And the future path of the economy can be affected by myriad unforeseen developments and events. Thus, in setting the stance of monetary policy, participants consider not only what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative possibilities, the likelihood of their occurring, and the potential costs to the economy should they occur.
Table 2 summarizes the average historical accuracy of a range of forecasts, including those reported in past Monetary Policy Reports and those prepared by Federal Reserve Board staff in advance of meetings of the Federal Open Market Committee. The projection error ranges shown in the table illustrate the considerable uncertainty associated with economic forecasts. For example, suppose a participant projects that real GDP and total consumer prices will rise steadily at annual rates of, respectively, 3 percent and 2 percent. If the uncertainty attending those projections is similar to that experienced in the past and the risks around the projections are broadly balanced, the numbers reported in table 2 might imply a probability of about 70 percent that actual GDP would expand between 1.8 percent to 4.2 percent in the current year, and 1.6 percent to 4.4 percent in the second and third years. The corresponding 70 percent confidence intervals for overall inflation would be 1 percent to 3 percent in the current and second years, and 1.1 percent to 2.9 percent in the third year.
Because current conditions may differ from those that prevailed on average over history, participants provide judgments as to whether the uncertainty attached to their projections of each variable is greater than, smaller than, or broadly similar to typical levels of forecast uncertainty in the past as shown in table 2. Participants also provide judgments as to whether the risks to their projections are weighted to the upside, downside, or are broadly balanced. That is, participants judge whether each variable is more likely to be above or below their projections of the most likely outcome. These judgments about the uncertainty and the risks attending each participant's projections are distinct from the diversity of participants' views about the most likely outcomes. Forecast uncertainty is concerned with the risks associated with a particular projection, rather than with divergences across a number of different projections.
Footnotes
14. The box "Forecast Uncertainty" at the end of this summary discusses the sources and interpretation of uncertainty in economic forecasts and explains the approach used to assess the uncertainty and risks attending participants' projections. Return to text
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Home News and events Monetary policy February 2008 reportAccessibility Contact UsLast update: February 27, 2008

Monetary Policy Report submitted to the Congress on February 27, 2008, pursuant to section 2B of the Federal Reserve Act
Part 4
Summary of Economic Projections
The following material appeared as an addendum to the minutes of the January 29–30, 2008, meeting of the Federal Open Market Committee.
In conjunction with the January 2008 FOMC meeting, the members of the Board of Governors and the presidents of the Federal Reserve Banks, all of whom participate in the deliberations of the FOMC, provided projections for economic growth, unemployment, and inflation in 2008, 2009, and 2010. Projections were based on information available through the conclusion of the January meeting, on each participant's assumptions regarding a range of factors likely to affect economic outcomes, and on his or her assessment of appropriate monetary policy. "Appropriate monetary policy" is defined as the future policy that, based on current information, is deemed most likely to foster outcomes for economic activity and inflation that best satisfy the participant's interpretation of the Federal Reserve's dual objectives of maximum employment and price stability.
The projections, which are summarized in table 1 and chart 1, suggest that FOMC participants expected that output would grow at a pace appreciably below its trend rate in 2008, owing primarily to a deepening of the housing contraction and a tightening in the availability of household and business credit, and that the unemployment rate would increase somewhat. Given the substantial reductions in the target federal funds rate through the January FOMC meeting as well as the assumption of appropriate policy going forward, output growth further ahead was projected to pick up to a pace around or a bit above its long-run trend by 2010. Inflation was expected to decline in 2008 and 2009 from its recent elevated levels as energy prices leveled out and economic slack contained cost and price increases. Most participants judged that considerable uncertainty surrounded their projections for output growth and viewed the risks to their forecasts as weighted to the downside. A majority of participants viewed the risks to the inflation outlook as broadly balanced, but a number of participants saw the risks to inflation as skewed to the upside.
Table 1: Economic Projections of Federal Reserve Governors and Reserve Bank Presidents(Percent)

2008
2009
2010
Central Tendency1
Growth of real GDP
1.3 to 2.0
2.1 to 2.7
2.5 to 3.0
October projections
1.8 to 2.5
2.3 to 2.7
2.5 to 2.6
Unemployment rate
5.2 to 5.3
5.0 to 5.3
4.9 to 5.1
October projections
4.8 to 4.9
4.8 to 4.9
4.7 to 4.9
PCE inflation
2.1 to 2.4
1.7 to 2.0
1.7 to 2.0
October projections
1.8 to 2.1
1.7 to 2.0
1.6 to 1.9
Core PCE inflation
2.0 to 2.2
1.7 to 2.0
1.7 to 1.9
October projections
1.7 to 1.9
1.7 to 1.9
1.6 to 1.9
Range2
Growth of real GDP
1.0 to 2.2
1.8 to 3.2
2.2 to 3.2
October projections
1.6 to 2.6
2.0 to 2.8
2.2 to 2.7
Unemployment rate
5.0 to 5.5
4.9 to 5.7
4.7 to 5.4
October projections
4.6 to 5.0
4.6 to 5.0
4.6 to 5.0
PCE inflation
2.0 to 2.8
1.7 to 2.3
1.5 to 2.0
October projections
1.7 to 2.3
1.5 to 2.2
1.5 to 2.0
Core PCE inflation
1.9 to 2.3
1.7 to 2.2
1.4 to 2.0
October projections
1.7 to 2.0
1.5 to 2.0
1.5 to 2.0
Note: Projections of the growth of real GDP, of PCE inflation, and of core PCE inflation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures and the price index for personal consumption expenditures excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant's projections are based on his or her assessment of appropriate monetary policy.
1. The central tendency excludes the three highest and three lowest projections for each variable in each year. Return to table
2. The range for a variable in a given year includes all participants' projections, from lowest to highest, for that variable in that year. Return to table
Chart 1: Central Tendencies and Ranges of Economic Projections*
*See notes to Table 1 for variable definitions. Accessible version of chart 1 Return to chart 1
The OutlookThe central tendency of participants' projections for real GDP growth in 2008, at 1.3 to 2.0 percent, was considerably lower than the central tendency of the projections provided in conjunction with the October FOMC meeting, which was 1.8 to 2.5 percent. These downward revisions to the 2008 outlook stemmed from a number of factors, including a further intensification of the housing market correction, tighter credit conditions amid increased concerns about credit quality and ongoing turmoil in financial markets, and higher oil prices. However, some participants noted that a fiscal stimulus package would likely provide a temporary boost to domestic demand in the second half of this year. Beyond 2008, a number of factors were projected to buoy economic growth, including a gradual turnaround in housing markets, lower interest rates associated with the substantial easing of monetary policy to date and appropriate adjustments to policy going forward, and an anticipated reduction in financial market strains. Real GDP was expected to accelerate somewhat in 2009 and by 2010 to expand at or a little above participants' estimates of the rate of trend growth.
With output growth running below trend over the next year or so, most participants expected that the unemployment rate would edge higher. The central tendency of participants' projections for the average rate of unemployment in the fourth quarter of 2008 was 5.2 to 5.3 percent, above the 4.8 to 4.9 percent unemployment rate forecasted in October and broadly suggestive of some slack in labor markets. The unemployment rate was generally expected to change relatively little in 2009 and then to edge lower in 2010 as output growth picks up, although in both years the unemployment rate was projected to be a little higher than had been anticipated in October.
The higher-than-expected rates of overall and core inflation since October, which were driven in part by the steep run-up in oil prices, had caused participants to revise up somewhat their projections for inflation in the near term. The central tendency of participants' projections for core PCE inflation in 2008 was 2.0 to 2.2 percent, up from the 1.7 to 1.9 percent central tendency in October. However, core inflation was expected to moderate over the next two years, reflecting muted pressures on resources and fairly well-anchored inflation expectations. Overall PCE inflation was projected to decline from its current elevated rate over the coming year, largely reflecting the assumption that energy and food prices would flatten out. Thereafter, overall PCE inflation was projected to move largely in step with core PCE inflation.
Participants' projections for 2010 were importantly influenced by their judgments about the measured rates of inflation consistent with the Federal Reserve's dual mandate to promote maximum employment and price stability and about the time frame over which policy should aim to attain those rates given current economic conditions. Many participants judged that, given the recent adverse shocks to both aggregate demand and inflation, policy would be able to foster only a gradual return of key macroeconomic variables to their longer-run sustainable or optimal levels. Consequently, the rate of unemployment was projected by some participants to remain slightly above its longer-run sustainable level even in 2010, and inflation was judged likely still to be a bit above levels that some participants judged would be consistent with the Federal Reserve's dual mandate.
Risks to the Outlook
Most participants viewed the risks to their GDP projections as weighted to the downside and the associated risks to their projections of unemployment as tilted to the upside. The possibility that house prices could decline more steeply than anticipated, further reducing households' wealth and access to credit, was perceived as a significant risk to the central outlook for economic growth and employment. In addition, despite some recovery in money markets after the turn of the year, financial market conditions continued to be strained--stock prices had declined sharply since the December meeting, concerns about further potential losses at major financial institutions had mounted amid worries about the condition of financial guarantors, and credit conditions had tightened in general for both households and firms. The potential for adverse interactions, in which weaker economic activity could lead to a worsening of financial conditions and a reduced availability of credit, which in turn could further damp economic growth, was viewed as an especially worrisome possibility.
Regarding risks to the inflation outlook, several participants pointed to the possibility that real activity could rebound less vigorously than projected, leading to more downward pressure on costs and prices than anticipated. However, participants also saw a number of upside risks to inflation. In particular, the pass-through of recent increases in energy and commodity prices as well as of past dollar depreciation to consumer prices could be greater than expected. In addition, participants recognized a risk that inflation expectations could become less firmly anchored if the current elevated rates of inflation persisted for longer than anticipated or if the recent substantial easing in monetary policy was misinterpreted as reflecting less resolve among Committee members to maintain low and stable inflation. On balance, a larger number of participants than in October viewed the risks to their inflation forecasts as broadly balanced, although several participants continued to indicate that their inflation projections were skewed to the upside.
The ongoing financial market turbulence and tightening of credit conditions had increased participants' uncertainty about the outlook for economic activity. Most participants judged that the uncertainty attending their January projections for real GDP growth and for the unemployment rate was above typical levels seen in the past. (Table 2 provides an estimate of average ranges of forecast uncertainty for GDP growth, unemployment, and inflation over the past twenty years.14)In contrast, the uncertainty attached to participants' inflation projections was generally viewed as being broadly in line with past experience, although several participants judged that the degree of uncertainty about inflation was higher than normal.
Table 2: Average Historical Projection Error Ranges(Percentage Points)

2008
2009
2010
Real GDP1
±1.2
±1.4
±1.4
Unemployment rate2
±0.5
±0.8
±1.0
Total consumer prices3
±1.0
±1.0
±0.9
Note: Error ranges shown are measured as plus or minus the root mean squared error of projections that were released in the winter from 1986 through 2006 for the current and following two years by various private and government forecasters. As described in the box "Forecast Uncertainty," under certain assumptions, there is about a 70 percent probability that actual outcomes for real GDP, unemployment, and consumer prices will be in ranges implied by the average size of projection errors made in the past. Further information is in David Reifschneider and Peter Tulip (2007), "Gauging the Uncertainty of the Economic Outlook from Historical Forecasting Errors," Finance and Economics Discussion Series #2007-60 (November).
1. Projection is percent change, fourth quarter of the previous year to fourth quarter of the year indicated. Return to table
2. Projection is the fourth quarter average of the civilian unemployment rate (percent). Return to table
3. Measure is the overall consumer price index, the price measure that has been most widely used in government and private economic forecasts. Projection is percent change, fourth quarter of the previous year to the fourth quarter of the year indicated. The slightly narrower estimated width of the confidence interval for inflation in the third year compared with those for the second and first years is likely the result of using a limited sample period for computing these statistics. Return to table
Diversity of Participants' ViewsCharts 2(a) and 2(b) provide more detail on the diversity of participants' views. The dispersion of participants' projections for real GDP growth was markedly wider than in the forecasts submitted in October, which in turn were considerably more diverse than those submitted in conjunction with the June FOMC meeting and included in the Board's Monetary Policy Report to the Congress in July. Mirroring the increase in diversity of views on real GDP growth, the dispersion of participants' projections for the rate of unemployment also widened notably, particularly for 2009 and 2010. The dispersion of projections for output and employment seemed largely to reflect differing assessments of the effect of financial market conditions on real activity, the speed with which credit conditions might improve, and the depth and duration of the housing market contraction. The dispersion of participants' longer-term projections was also affected to some degree by differences in their judgments about the economy's trend growth rate and the unemployment rate that would be consistent over time with maximum employment. Views also differed about the pace at which output and employment would recover toward those levels over the forecast horizon and beyond, given appropriate monetary policy. The dispersion of the projections for PCE inflation in the near term partly reflected different views on the extent to which recent increases in energy and other commodity prices would pass through into higher consumer prices and on the influence that inflation expectations would exert on inflation over the short and medium run. Participants' inflation projections further out were influenced by their views of the rate of inflation consistent with the Federal Reserve's dual objectives and the time it would take to achieve these goals given current economic conditions and appropriate policy.
Chart 2(a): Distribution of Participants' Projections (percent)*
*Accessible version of chart 2(a) Return to chart 2(a)
Chart 2(b): Distribution of Participants' Projections (percent)*
*Accessible version of chart 2(b) Return to chart 2(b)
Forecast Uncertainty
The economic projections provided by the members of the Board of Governors and the presidents of the Federal Reserve Banks help shape monetary policy and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts are necessarily imperfect descriptions of the real world. And the future path of the economy can be affected by myriad unforeseen developments and events. Thus, in setting the stance of monetary policy, participants consider not only what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative possibilities, the likelihood of their occurring, and the potential costs to the economy should they occur.
Table 2 summarizes the average historical accuracy of a range of forecasts, including those reported in past Monetary Policy Reports and those prepared by Federal Reserve Board staff in advance of meetings of the Federal Open Market Committee. The projection error ranges shown in the table illustrate the considerable uncertainty associated with economic forecasts. For example, suppose a participant projects that real GDP and total consumer prices will rise steadily at annual rates of, respectively, 3 percent and 2 percent. If the uncertainty attending those projections is similar to that experienced in the past and the risks around the projections are broadly balanced, the numbers reported in table 2 might imply a probability of about 70 percent that actual GDP would expand between 1.8 percent to 4.2 percent in the current year, and 1.6 percent to 4.4 percent in the second and third years. The corresponding 70 percent confidence intervals for overall inflation would be 1 percent to 3 percent in the current and second years, and 1.1 percent to 2.9 percent in the third year.
Because current conditions may differ from those that prevailed on average over history, participants provide judgments as to whether the uncertainty attached to their projections of each variable is greater than, smaller than, or broadly similar to typical levels of forecast uncertainty in the past as shown in table 2. Participants also provide judgments as to whether the risks to their projections are weighted to the upside, downside, or are broadly balanced. That is, participants judge whether each variable is more likely to be above or below their projections of the most likely outcome. These judgments about the uncertainty and the risks attending each participant's projections are distinct from the diversity of participants' views about the most likely outcomes. Forecast uncertainty is concerned with the risks associated with a particular projection, rather than with divergences across a number of different projections.
Footnotes
14. The box "Forecast Uncertainty" at the end of this summary discusses the sources and interpretation of uncertainty in economic forecasts and explains the approach used to assess the uncertainty and risks attending participants' projections. Return to text
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US FEDERAL RESERVE BANK REPORT TO CONGRESS

Chairman Ben S. Bernanke
Semiannual Monetary Policy Report to the Congress
Before the Committee on Financial Services, U.S. House of Representatives
February 27, 2008
Chairman Bernanke presented identical testimony before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, on February 28, 2008
Chairman Frank, Ranking Member Bachus, and other members of the Committee, I am pleased to present the Federal Reserve's Monetary Policy Report to the Congress. In my testimony this morning I will briefly review the economic situation and outlook, beginning with developments in real activity and inflation, then turn to monetary policy. I will conclude with a quick update on the Federal Reserve's recent actions to help protect consumers in their financial dealings.
The economic situation has become distinctly less favorable since the time of our July report. Strains in financial markets, which first became evident late last summer, have persisted; and pressures on bank capital and the continued poor functioning of markets for securitized credit have led to tighter credit conditions for many households and businesses. The growth of real gross domestic product (GDP) held up well through the third quarter despite the financial turmoil, but it has since slowed sharply. Labor market conditions have similarly softened, as job creation has slowed and the unemployment rate--at 4.9 percent in January--has moved up somewhat.
Many of the challenges now facing our economy stem from the continuing contraction of the U.S. housing market. In 2006, after a multiyear boom in residential construction and house prices, the housing market reversed course. Housing starts and sales of new homes are now less than half of their respective peaks, and house prices have flattened or declined in most areas. Changes in the availability of mortgage credit amplified the swings in the housing market. During the housing sector's expansion phase, increasingly lax lending standards, particularly in the subprime market, raised the effective demand for housing, pushing up prices and stimulating construction activity. As the housing market began to turn down, however, the slump in subprime mortgage originations, together with a more general tightening of credit conditions, has served to increase the severity of the downturn. Weaker house prices in turn have contributed to the deterioration in the performance of mortgage-related securities and reduced the availability of mortgage credit.
The housing market is expected to continue to weigh on economic activity in coming quarters. Homebuilders, still faced with abnormally high inventories of unsold homes, are likely to cut the pace of their building activity further, which will subtract from overall growth and reduce employment in residential construction and closely related industries.
Consumer spending continued to increase at a solid pace through much of the second half of 2007, despite the problems in the housing market, but it appears to have slowed significantly toward the end of the year. The jump in the price of imported energy, which eroded real incomes and wages, likely contributed to the slowdown in spending, as did the declines in household wealth associated with the weakness in house prices and equity prices. Slowing job creation is yet another potential drag on household spending, as gains in payroll employment averaged little more than 40,000 per month during the three months ending in January, compared with an average increase of almost 100,000 per month over the previous three months. However, the recently enacted fiscal stimulus package should provide some support for household spending during the second half of this year and into next year.
The business sector has also displayed signs of being affected by the difficulties in the housing and credit markets. Reflecting a downshift in the growth of final demand and tighter credit conditions for some firms, available indicators suggest that investment in equipment and software will be subdued during the first half of 2008. Likewise, after growing robustly through much of 2007, nonresidential construction is likely to decelerate sharply in coming quarters as business activity slows and funding becomes harder to obtain, especially for more speculative projects. On a more encouraging note, we see few signs of any serious imbalances in business inventories aside from the overhang of unsold homes. And, as a whole, the nonfinancial business sector remains in good financial condition, with strong profits, liquid balance sheets, and corporate leverage near historical lows.
In addition, the vigor of the global economy has offset some of the weakening of domestic demand. U.S. real exports of goods and services increased at an annual rate of about 11 percent in the second half of last year, boosted by continuing economic growth abroad and the lower foreign exchange value of the dollar. Strengthening exports, together with moderating imports, have in turn led to some improvement in the U.S. current account deficit, which likely narrowed in 2007 (on an annual basis) for the first time since 2001. Although recent indicators point to some slowing of foreign economic growth, U.S. exports should continue to expand at a healthy pace in coming quarters, providing some impetus to domestic economic activity and employment.
As I have mentioned, financial markets continue to be under considerable stress. Heightened investor concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates, triggered the financial turmoil. However, other factors, including a broader retrenchment in the willingness of investors to bear risk, difficulties in valuing complex or illiquid financial products, uncertainties about the exposures of major financial institutions to credit losses, and concerns about the weaker outlook for economic growth, have also roiled the financial markets in recent months. To help relieve the pressures in the market for interbank lending, the Federal Reserve--among other actions--recently introduced a term auction facility (TAF), through which prespecified amounts of discount window credit are auctioned to eligible borrowers, and we have been working with other central banks to address market strains that could hamper the achievement of our broader economic objectives. These efforts appear to have contributed to some improvement in short-term funding markets. We will continue to monitor financial developments closely.
As part of its ongoing commitment to improving the accountability and public understanding of monetary policy making, the Federal Open Market Committee (FOMC) recently increased the frequency and expanded the content of the economic projections made by Federal Reserve Board members and Reserve Bank presidents and released to the public. The latest economic projections, which were submitted in conjunction with the FOMC meeting at the end of January and which are based on each participant's assessment of appropriate monetary policy, show that real GDP was expected to grow only sluggishly in the next few quarters and that the unemployment rate was seen as likely to increase somewhat. In particular, the central tendency of the projections was for real GDP to grow between 1.3 percent and 2.0 percent in 2008, down from 2-1/2 percent to 2-3/4 percent projected in our report last July. FOMC participants' projections for the unemployment rate in the fourth quarter of 2008 have a central tendency of 5.2 percent to 5.3 percent, up from the level of about 4-3/4 percent projected last July for the same period. The downgrade in our projections for economic activity in 2008 since our report last July reflects the effects of the financial turmoil on real activity and a housing contraction that has been more severe than previously expected. By 2010, our most recent projections show output growth picking up to rates close to or a little above its longer-term trend and the unemployment rate edging lower; the improvement reflects the effects of policy stimulus and an anticipated moderation of the contraction in housing and the strains in financial and credit markets. The incoming information since our January meeting continues to suggest sluggish economic activity in the near term.
The risks to this outlook remain to the downside. The risks include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.
Consumer price inflation has increased since our previous report, in substantial part because of the steep run-up in the price of oil. Last year, food prices also increased significantly, and the dollar depreciated. Reflecting these influences, the price index for personal consumption expenditures (PCE) increased 3.4 percent over the four quarters of 2007, up from 1.9 percent in 2006. Core price inflation--that is, inflation excluding food and energy prices--also firmed toward the end of the year. The higher recent readings likely reflected some pass-through of energy costs to the prices of core consumer goods and services as well as the effect of the depreciation of the dollar on import prices. Moreover, core inflation in the first half of 2007 was damped by a number of transitory factors--notably, unusually soft prices for apparel and for financial services--which subsequently reversed. For the year as a whole, however, core PCE prices increased 2.1 percent, down slightly from 2006.
The projections recently submitted by FOMC participants indicate that overall PCE inflation was expected to moderate significantly in 2008, to between 2.1 percent and 2.4 percent (the central tendency of the projections). A key assumption underlying those projections was that energy and food prices would begin to flatten out, as was implied by quotes on futures markets. In addition, diminishing pressure on resources is also consistent with the projected slowing in inflation. The central tendency of the projections for core PCE inflation in 2008, at 2.0 percent to 2.2 percent, was a bit higher than in our July report, largely because of some higher-than-expected recent readings on prices. Beyond 2008, both overall and core inflation were projected to edge lower, as participants expected inflation expectations to remain reasonably well-anchored and pressures on resource utilization to be muted. The inflation projections submitted by FOMC participants for 2010--which ranged from 1.5 percent to 2.0 percent for overall PCE inflation--were importantly influenced by participants' judgments about the measured rates of inflation consistent with the Federal Reserve's dual mandate and about the time frame over which policy should aim to attain those rates.
The rate of inflation that is actually realized will of course depend on a variety of factors. Inflation could be lower than we anticipate if slower-than-expected global growth moderates the pressure on the prices of energy and other commodities or if rates of domestic resource utilization fall more than we currently expect. Upside risks to the inflation projection are also present, however, including the possibilities that energy and food prices do not flatten out or that the pass-through to core prices from higher commodity prices and from the weaker dollar may be greater than we anticipate. Indeed, the further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month. Should high rates of overall inflation persist, the possibility also exists that inflation expectations could become less well anchored. Any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and could reduce the flexibility of the FOMC to counter shortfalls in growth in the future. Accordingly, in the months ahead, the Federal Reserve will continue to monitor closely inflation and inflation expectations.
Let me turn now to the implications of these developments for monetary policy. The FOMC has responded aggressively to the weaker outlook for economic activity, having reduced its target for the federal funds rate by 225 basis points since last summer. As the Committee noted in its most recent post-meeting statement, the intent of those actions has been to help promote moderate growth over time and to mitigate the risks to economic activity.
A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability in an environment of downside risks to growth, stressed financial conditions, and inflation pressures. In particular, the FOMC will need to judge whether the policy actions taken thus far are having their intended effects. Monetary policy works with a lag. Therefore, our policy stance must be determined in light of the medium-term forecast for real activity and inflation as well as the risks to that forecast. Although the FOMC participants' economic projections envision an improving economic picture, it is important to recognize that downside risks to growth remain. The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.
Finally, I would like to say a few words about the Federal Reserve's recent actions to protect consumers in their financial transactions. In December, following up on a commitment I made at the time of our report last July, the Board issued for public comment a comprehensive set of new regulations to prohibit unfair or deceptive practices in the mortgage market, under the authority granted us by the Home Ownership and Equity Protection Act of 1994. The proposed rules would apply to all mortgage lenders and would establish lending standards to help ensure that consumers who seek mortgage credit receive loans whose terms are clearly disclosed and that can reasonably be expected to be repaid. Accordingly, the rules would prohibit lenders from engaging in a pattern or practice of making higher-priced mortgage loans without due regard to consumers' ability to make the scheduled payments. In each case, a lender making a higher-priced loan would have to use third-party documents to verify the income relied on to make the credit decision. For higher-priced loans, the proposed rules would require the lender to establish an escrow account for the payment of property taxes and homeowners' insurance and would prevent the use of prepayment penalties in circumstances where they might trap borrowers in unaffordable loans. In addition, for all mortgage loans, our proposal addresses misleading and deceptive advertising practices, requires borrowers and brokers to agree in advance on the maximum fee that the broker may receive, bans certain practices by servicers that harm borrowers, and prohibits coercion of appraisers by lenders. We expect substantial public comment on our proposal, and we will carefully consider all information and viewpoints while moving expeditiously to adopt final rules.
The effectiveness of the new regulations, however, will depend critically on strong enforcement. To that end, in conjunction with other federal and state agencies, we are conducting compliance reviews of a range of mortgage lenders, including nondepository lenders. The agencies will collaborate in determining the lessons learned and in seeking ways to better cooperate in ensuring effective and consistent examinations of, and improved enforcement for, all categories of mortgage lenders.
The Federal Reserve continues to work with financial institutions, public officials, and community groups around the country to help homeowners avoid foreclosures. We have called on mortgage lenders and servicers to pursue prudent loan workouts and have supported the development of streamlined, systematic approaches to expedite the loan modification process. We also have been providing community groups, counseling agencies, regulators, and others with detailed analyses to help identify neighborhoods at high risk from foreclosures so that local outreach efforts to help troubled borrowers can be as focused and effective as possible. We are actively pursuing other ways to leverage the Federal Reserve's analytical resources, regional presence, and community connections to address this critical issue.
In addition to our consumer protection efforts in the mortgage area, we are working toward finalizing rules under the Truth in Lending Act that will require new, more informative, and consumer-tested disclosures by credit card issuers. Separately, we are actively reviewing potentially unfair and deceptive practices by issuers of credit cards. Using the Board's authority under the Federal Trade Commission Act, we expect to issue proposed rules regarding these practices this spring.
Thank you. I would be pleased to take your questions.
February 2008 Monetary Policy ReportChairman Ben S. Bernanke
Semiannual Monetary Policy Report to the Congress
Before the Committee on Financial Services, U.S. House of Representatives
February 27, 2008
Chairman Bernanke presented identical testimony before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, on February 28, 2008
Chairman Frank, Ranking Member Bachus, and other members of the Committee, I am pleased to present the Federal Reserve's Monetary Policy Report to the Congress. In my testimony this morning I will briefly review the economic situation and outlook, beginning with developments in real activity and inflation, then turn to monetary policy. I will conclude with a quick update on the Federal Reserve's recent actions to help protect consumers in their financial dealings.
The economic situation has become distinctly less favorable since the time of our July report. Strains in financial markets, which first became evident late last summer, have persisted; and pressures on bank capital and the continued poor functioning of markets for securitized credit have led to tighter credit conditions for many households and businesses. The growth of real gross domestic product (GDP) held up well through the third quarter despite the financial turmoil, but it has since slowed sharply. Labor market conditions have similarly softened, as job creation has slowed and the unemployment rate--at 4.9 percent in January--has moved up somewhat.
Many of the challenges now facing our economy stem from the continuing contraction of the U.S. housing market. In 2006, after a multiyear boom in residential construction and house prices, the housing market reversed course. Housing starts and sales of new homes are now less than half of their respective peaks, and house prices have flattened or declined in most areas. Changes in the availability of mortgage credit amplified the swings in the housing market. During the housing sector's expansion phase, increasingly lax lending standards, particularly in the subprime market, raised the effective demand for housing, pushing up prices and stimulating construction activity. As the housing market began to turn down, however, the slump in subprime mortgage originations, together with a more general tightening of credit conditions, has served to increase the severity of the downturn. Weaker house prices in turn have contributed to the deterioration in the performance of mortgage-related securities and reduced the availability of mortgage credit.
The housing market is expected to continue to weigh on economic activity in coming quarters. Homebuilders, still faced with abnormally high inventories of unsold homes, are likely to cut the pace of their building activity further, which will subtract from overall growth and reduce employment in residential construction and closely related industries.
Consumer spending continued to increase at a solid pace through much of the second half of 2007, despite the problems in the housing market, but it appears to have slowed significantly toward the end of the year. The jump in the price of imported energy, which eroded real incomes and wages, likely contributed to the slowdown in spending, as did the declines in household wealth associated with the weakness in house prices and equity prices. Slowing job creation is yet another potential drag on household spending, as gains in payroll employment averaged little more than 40,000 per month during the three months ending in January, compared with an average increase of almost 100,000 per month over the previous three months. However, the recently enacted fiscal stimulus package should provide some support for household spending during the second half of this year and into next year.
The business sector has also displayed signs of being affected by the difficulties in the housing and credit markets. Reflecting a downshift in the growth of final demand and tighter credit conditions for some firms, available indicators suggest that investment in equipment and software will be subdued during the first half of 2008. Likewise, after growing robustly through much of 2007, nonresidential construction is likely to decelerate sharply in coming quarters as business activity slows and funding becomes harder to obtain, especially for more speculative projects. On a more encouraging note, we see few signs of any serious imbalances in business inventories aside from the overhang of unsold homes. And, as a whole, the nonfinancial business sector remains in good financial condition, with strong profits, liquid balance sheets, and corporate leverage near historical lows.
In addition, the vigor of the global economy has offset some of the weakening of domestic demand. U.S. real exports of goods and services increased at an annual rate of about 11 percent in the second half of last year, boosted by continuing economic growth abroad and the lower foreign exchange value of the dollar. Strengthening exports, together with moderating imports, have in turn led to some improvement in the U.S. current account deficit, which likely narrowed in 2007 (on an annual basis) for the first time since 2001. Although recent indicators point to some slowing of foreign economic growth, U.S. exports should continue to expand at a healthy pace in coming quarters, providing some impetus to domestic economic activity and employment.
As I have mentioned, financial markets continue to be under considerable stress. Heightened investor concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates, triggered the financial turmoil. However, other factors, including a broader retrenchment in the willingness of investors to bear risk, difficulties in valuing complex or illiquid financial products, uncertainties about the exposures of major financial institutions to credit losses, and concerns about the weaker outlook for economic growth, have also roiled the financial markets in recent months. To help relieve the pressures in the market for interbank lending, the Federal Reserve--among other actions--recently introduced a term auction facility (TAF), through which prespecified amounts of discount window credit are auctioned to eligible borrowers, and we have been working with other central banks to address market strains that could hamper the achievement of our broader economic objectives. These efforts appear to have contributed to some improvement in short-term funding markets. We will continue to monitor financial developments closely.
As part of its ongoing commitment to improving the accountability and public understanding of monetary policy making, the Federal Open Market Committee (FOMC) recently increased the frequency and expanded the content of the economic projections made by Federal Reserve Board members and Reserve Bank presidents and released to the public. The latest economic projections, which were submitted in conjunction with the FOMC meeting at the end of January and which are based on each participant's assessment of appropriate monetary policy, show that real GDP was expected to grow only sluggishly in the next few quarters and that the unemployment rate was seen as likely to increase somewhat. In particular, the central tendency of the projections was for real GDP to grow between 1.3 percent and 2.0 percent in 2008, down from 2-1/2 percent to 2-3/4 percent projected in our report last July. FOMC participants' projections for the unemployment rate in the fourth quarter of 2008 have a central tendency of 5.2 percent to 5.3 percent, up from the level of about 4-3/4 percent projected last July for the same period. The downgrade in our projections for economic activity in 2008 since our report last July reflects the effects of the financial turmoil on real activity and a housing contraction that has been more severe than previously expected. By 2010, our most recent projections show output growth picking up to rates close to or a little above its longer-term trend and the unemployment rate edging lower; the improvement reflects the effects of policy stimulus and an anticipated moderation of the contraction in housing and the strains in financial and credit markets. The incoming information since our January meeting continues to suggest sluggish economic activity in the near term.
The risks to this outlook remain to the downside. The risks include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.
Consumer price inflation has increased since our previous report, in substantial part because of the steep run-up in the price of oil. Last year, food prices also increased significantly, and the dollar depreciated. Reflecting these influences, the price index for personal consumption expenditures (PCE) increased 3.4 percent over the four quarters of 2007, up from 1.9 percent in 2006. Core price inflation--that is, inflation excluding food and energy prices--also firmed toward the end of the year. The higher recent readings likely reflected some pass-through of energy costs to the prices of core consumer goods and services as well as the effect of the depreciation of the dollar on import prices. Moreover, core inflation in the first half of 2007 was damped by a number of transitory factors--notably, unusually soft prices for apparel and for financial services--which subsequently reversed. For the year as a whole, however, core PCE prices increased 2.1 percent, down slightly from 2006.
The projections recently submitted by FOMC participants indicate that overall PCE inflation was expected to moderate significantly in 2008, to between 2.1 percent and 2.4 percent (the central tendency of the projections). A key assumption underlying those projections was that energy and food prices would begin to flatten out, as was implied by quotes on futures markets. In addition, diminishing pressure on resources is also consistent with the projected slowing in inflation. The central tendency of the projections for core PCE inflation in 2008, at 2.0 percent to 2.2 percent, was a bit higher than in our July report, largely because of some higher-than-expected recent readings on prices. Beyond 2008, both overall and core inflation were projected to edge lower, as participants expected inflation expectations to remain reasonably well-anchored and pressures on resource utilization to be muted. The inflation projections submitted by FOMC participants for 2010--which ranged from 1.5 percent to 2.0 percent for overall PCE inflation--were importantly influenced by participants' judgments about the measured rates of inflation consistent with the Federal Reserve's dual mandate and about the time frame over which policy should aim to attain those rates.
The rate of inflation that is actually realized will of course depend on a variety of factors. Inflation could be lower than we anticipate if slower-than-expected global growth moderates the pressure on the prices of energy and other commodities or if rates of domestic resource utilization fall more than we currently expect. Upside risks to the inflation projection are also present, however, including the possibilities that energy and food prices do not flatten out or that the pass-through to core prices from higher commodity prices and from the weaker dollar may be greater than we anticipate. Indeed, the further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month. Should high rates of overall inflation persist, the possibility also exists that inflation expectations could become less well anchored. Any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and could reduce the flexibility of the FOMC to counter shortfalls in growth in the future. Accordingly, in the months ahead, the Federal Reserve will continue to monitor closely inflation and inflation expectations.
Let me turn now to the implications of these developments for monetary policy. The FOMC has responded aggressively to the weaker outlook for economic activity, having reduced its target for the federal funds rate by 225 basis points since last summer. As the Committee noted in its most recent post-meeting statement, the intent of those actions has been to help promote moderate growth over time and to mitigate the risks to economic activity.
A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability in an environment of downside risks to growth, stressed financial conditions, and inflation pressures. In particular, the FOMC will need to judge whether the policy actions taken thus far are having their intended effects. Monetary policy works with a lag. Therefore, our policy stance must be determined in light of the medium-term forecast for real activity and inflation as well as the risks to that forecast. Although the FOMC participants' economic projections envision an improving economic picture, it is important to recognize that downside risks to growth remain. The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.
Finally, I would like to say a few words about the Federal Reserve's recent actions to protect consumers in their financial transactions. In December, following up on a commitment I made at the time of our report last July, the Board issued for public comment a comprehensive set of new regulations to prohibit unfair or deceptive practices in the mortgage market, under the authority granted us by the Home Ownership and Equity Protection Act of 1994. The proposed rules would apply to all mortgage lenders and would establish lending standards to help ensure that consumers who seek mortgage credit receive loans whose terms are clearly disclosed and that can reasonably be expected to be repaid. Accordingly, the rules would prohibit lenders from engaging in a pattern or practice of making higher-priced mortgage loans without due regard to consumers' ability to make the scheduled payments. In each case, a lender making a higher-priced loan would have to use third-party documents to verify the income relied on to make the credit decision. For higher-priced loans, the proposed rules would require the lender to establish an escrow account for the payment of property taxes and homeowners' insurance and would prevent the use of prepayment penalties in circumstances where they might trap borrowers in unaffordable loans. In addition, for all mortgage loans, our proposal addresses misleading and deceptive advertising practices, requires borrowers and brokers to agree in advance on the maximum fee that the broker may receive, bans certain practices by servicers that harm borrowers, and prohibits coercion of appraisers by lenders. We expect substantial public comment on our proposal, and we will carefully consider all information and viewpoints while moving expeditiously to adopt final rules.
The effectiveness of the new regulations, however, will depend critically on strong enforcement. To that end, in conjunction with other federal and state agencies, we are conducting compliance reviews of a range of mortgage lenders, including nondepository lenders. The agencies will collaborate in determining the lessons learned and in seeking ways to better cooperate in ensuring effective and consistent examinations of, and improved enforcement for, all categories of mortgage lenders.
The Federal Reserve continues to work with financial institutions, public officials, and community groups around the country to help homeowners avoid foreclosures. We have called on mortgage lenders and servicers to pursue prudent loan workouts and have supported the development of streamlined, systematic approaches to expedite the loan modification process. We also have been providing community groups, counseling agencies, regulators, and others with detailed analyses to help identify neighborhoods at high risk from foreclosures so that local outreach efforts to help troubled borrowers can be as focused and effective as possible. We are actively pursuing other ways to leverage the Federal Reserve's analytical resources, regional presence, and community connections to address this critical issue.
In addition to our consumer protection efforts in the mortgage area, we are working toward finalizing rules under the Truth in Lending Act that will require new, more informative, and consumer-tested disclosures by credit card issuers. Separately, we are actively reviewing potentially unfair and deceptive practices by issuers of credit cards. Using the Board's authority under the Federal Trade Commission Act, we expect to issue proposed rules regarding these practices this spring.
Thank you. I would be pleased to take your questions.
February 2008 Monetary Policy Report
Chairman Ben S. Bernanke
Semiannual Monetary Policy Report to the

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New group seeks city status for Ruskin
RUSKIN - A new organization will try to create a city in Ruskin.
The Ruskin Incorporation Committee Inc., is a newly formed non-profit entity that will seek community support to bring the issue of incorporation to a vote in Ruskin next year.
Ruskin resident Bonnie Fagoh was named the first chair of the new organization, which is looking for residents who want to help. For more information, contact Fagoh at 813 390-7606.

Monday, February 25, 2008

HOUSING MARKET FOR FEBRUARY 2008!!

Your REALTOR:
Bonnie Fagoh
February 2008
Buyin' or Sellin'....Call Bonnie Helen! (Fagoh)(813) 390-7606
Copyright © 2008 Realty TimesAll Rights Reserved.
Home Selling Tips ForSpring Buyer's Market If you're planning to put your home on the market in time for spring, now's the time to get it ready to show. But wait, it's still a buyer's market. What can you do to catch the buyer's eye and get them to make an offer? It's going to take more than a fresh coat of paint and a new welcome mat. A buyer's market raises the stakes, and you'll find you need to do a lot more work on your home than you think, if you want to get the highest price possible. You've heard that you should clean, paint and repair, but that may not be enough. If your home is cluttered and in disrepair, buyers won't pay top dollar.
Mortgage Rates U.S. averages as of January 31, 2008:30 yr. fixed: 5.68%15 yr. fixed: 5.17%1 yr. adj: 5.05%30 yr. jumbo: 6.98%-->
View current rates
Knowing how buyers reason should help you pick which updates are most likely to help you sell your home. Let's take the most basic selling suggestions and explore why these are such important mantras.
CONTINUED >>>
Wondering What Your Home Is Worth?Let me show you.
Are You Leaving a Tax Deduction on the Table? If you refinanced your home recently, you're not alone. According to Plunkett Research, approximately $1.1 trillion dollars in mortgage loans was refinanced in the United States in 2006. But did you remember to take an increased mortgage interest deduction on your tax return if you were entitled to one? Here's how it works. You are allowed to take a deduction on your personal tax return for mortgage interest you pay on a loan that is secured by either your principal residence or a second home, up to one million dollars in acquisition indebtedness. That means mortgages, lines of credit and home equity loans all qualify, as long as they are secured by your home, and you are the primary borrower, and legally obligated to repay that loan. What you call your first and second homes can be pretty open to interpretation. Pretty much anything will qualify if it has sleeping, cooking and toilet facilities.
CONTINUED >>>
Five Reasons HousesBeat Stocks Despite what Wall Street wants you to believe, owning a home isn't the same kind of investment as stocks or bonds. What you get is a USE asset that depreciates over time, while it grows in market value. All you have to do is keep the home in good repair to max out your take. Here are five reasons why you get more for your money with a house than a worthless sock puppet. Leverage: with stocks, you put in all your money for a little piece of a company. With a house, you put in a little money to get all of the house. Tax benefits: Uncle Sam knows that owning a home is a pain in the neck, that's why you get subsidies. These are basically government bribes to get you to buy. What other investment can you put in 5 percent of the cost of the asset, reap all the appreciation and pay no capital gains? That's right: live in your home two years, rent it for three, sell it, and pay no tax on capital gains up to 250,000 for singles, $500,000 for married couples. And you're worried about paying too much? And that's not all - think about the benefits of fixed-rate mortgages, property tax write-offs, interest rate deductions, depreciation. Is this a great country or what?
CONTINUED >>>
Life Expectancy of Home Components One way to prepare for the costs of owning a home beyond the mortgage payment, insurance and taxes, is to know the expected life expectancy of your home's components. Such knowledge doesn't supersede the use of a home inspector when buying a home, new or old, but it can help you develop a savings plan so you are prepared for the inevitable. Sooner or later you'll have to repair or replace many of your home's parts -- inside and out. Knowledge of components' life expectancies is what homeowner associations use, in part, to build a reserve fund designed to spread, over time, the cost of the inevitable.
CONTINUED >>>Local Market Conditions
Daily News and Advice -->Read about the events shaping the Real Estate market today, find current interest rates, or browse the extensive library of advice and how-to articles written by some of the top experts in Real Estate. Updated each weekday.
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Bonnie Fagoh E-mail: bonniefagoh@century21beggins.com Web: http://WWW.TAMPACOASTALREALESTATE.COM 813-390-7606
Century 21 Beggins Enterprises813-390-7606 6542 U. S. Hwy. 41 N.Apollo Beach, FL 33572
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Sunday, February 24, 2008

REAL ESTATE NEWS YOU CAN USE JANUARY 2008

Your REALTOR:
Bonnie Fagoh
January 2008
Buyin' or Sellin'....Call Bonnie Helen! (Fagoh)(813) 390-7606
Copyright © 2008 Realty TimesAll Rights Reserved.
Top 10 Tax Breaks,On The House The New Year always turns thoughts to the new tax season and when it comes to taxes there's no place like home to find shelter. Your home offers a score of tax deductions and credits designed to help offset the cost of housing and to keep the housing market fueled with new buyers. Here's a look at the Top 10 Tax Breaks, On The House. Mortgage Loan Interest: The Mother Of All Tax Breaks, because interest payments comprises a large portion of your mortgage payment in the early years of the loan's term, mortgage interest on a maximum of $1 million in
Mortgage Rates U.S. averages as of December 27, 2007:30 yr. fixed: 6.17%15 yr. fixed: 5.79%1 yr. adj: 5.53%30 yr. jumbo: 6.98%-->
View current rates
mortgage debt secured by a first and second home is deductible. Deductions reduce your taxable income against which your taxes due are calculated. The $1 million level applies to married tax filers who file jointly and single taxpayers.
CONTINUED >>>
Wondering What Your Home Is Worth?Let me show you.
Battle of the WarringHousing Price Indexes We saw another "battle of the warring housing price indexes" last month, with the federal government reporting positive price appreciation in more than two-thirds of U.S. metropolitan markets -- at the same time a widely-publicized Wall Street index said home values were down by a record 4 percent for the year, and down by 5 percent in the top 20 markets. How could there be such big differences? And which index is right? Here are the facts: The federal government's house price index is produced quarterly by an agency called the Office of Federal Housing Enterprise Oversight (OFHEO). It measures valuation movements in a massive database of millions of homes whose loans were financed or refinanced by Fannie Mae or Freddie Mac. The data covers nearly 300 major metropolitan markets and dozens of smaller non-metropolitan areas. In its latest index, released November 29, OFHEO reported prices in
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Smoothing The RoughRoad To Refinancing Lower interest rates could offer some financial buoyancy for those looking to refinance before they get in over their heads. Home mortgage interest rates have been flat or falling since early October. The falling average rate probably won't help those who purchased a home, a year or two ago, especially if they had a small equity stake in their home. "The problem is a lot of people in those products is they don't have any equity in the house and lenders want equity to refinance," said Glenda Queensbury, a mortgage adviser in San Jose, CA. However, there could be a safe harbor available for others facing a resetting adjustable rate mortgage (ARM) with the potential for higher rates and unmanageable mortgage payments. The key, say the experts, is to examine your options early. "Absolutely. When people start feeling the pinch don't wait until you are delinquent. The more delinquent you become the more options that will start going off the table" says William Higgins, chief lending officer of online bank Ing Direct. Higgins says it's a good idea to visit your existing lender first. That's especially true if your lender doesn't sell loans and has a vested financial interest
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Stone is a Growing TrendFor Home D├ęcor It's as old as time, but as popular as ever. Stone is rapidly making its way into homes as perhaps one of the fastest growing decorating trends. The European Old World look brings with it not only a luxurious style but also an ease and comfort that gives a home personality. Homeowners are leaving behind the once-preferred 70's looks of wall-to-wall carpeting throughout the house, linoleum kitchen floors and vinyl tiles in the bathroom, and instead choosing natural stone, Versailles patterns, travertine, and limestone, with honed-matte finished surfaces. For countertops, homeowners are using two tones, finishing their kitchen island in maybe limestone and the surrounding kitchen countertops in granite materials for a unique style.
CONTINUED >>>Local Market Conditions
Daily News and Advice -->Read about the events shaping the Real Estate market today, find current interest rates, or browse the extensive library of advice and how-to articles written by some of the top experts in Real Estate. Updated each weekday.
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Bonnie Fagoh E-mail: bonniefagoh@century21beggins.com Web: http://WWW.TAMPACOASTALHOMES.COM 813-390-7606
Century 21 Beggins Enterprises813-390-7606 6542 U. S. Hwy. 41 N.Apollo Beach, FL 33572


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REAL ESTATE NEWS FOR DECEMBER 2007

Your REALTOR:
Bonnie Fagoh
December 2007
Buyin' or Sellin'....Call Bonnie Helen! (Fagoh)(813) 390-7606
Copyright © 2007 Realty TimesAll Rights Reserved.
Should I Take My Home Off the Market During the Holidays? When you look at your calendar you may find the months already overloaded with seasonal obligations -- shopping, entertaining, children's pageants, charity work, decorating the house, and so much more. If you are also trying to sell your home, you are under extra pressure to keep your home in "showtime" condition. And that could be the last thing you need before the holiday spirit is broken. It is understandable why you would be tempted to take your home off the market during the holidays. And the list of justifications is long. If you are too busy, buyers may be also, and you may find your efforts unrewarded with not
Mortgage Rates U.S. averages as of November 29, 2007:30 yr. fixed: 6.10%15 yr. fixed: 5.73%1 yr. adj: 5.43%30 yr. jumbo: 6.98%-->
View current rates
enough showings. And what if you do get an offer? You may be faced with the possibility of packing and moving during the busiest time of the year. Besides, you can give your house a rest, and it will have better momentum after the holidays. Better to
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Wondering What Your Home Is Worth?Let me show you.
How to Handle Low Ball Offers If your house has been on the market for quite a while, you may have already dropped your price and now you're waiting for the buyers to rush in and make wonderful offers on this now-priced right property. And then it happens. The lone buyer does appear, like a bandit in the night and offers you even less than what you just agreed to. Quite a bit less -- about 10 percent less. So on your $350,000 house, that you just dropped to $324,000, you now have an offer for $299,000. With a seller subsidy request of $5,000. At this point, your net is $294,000. So how do you handle such a low-ball offer. Well, first of all -- don't panic, get angry or lose sleep. Especially, don't reject the offer right off the bat and tell them to come back when they're serious. Remember, it's now a negotiation game and the buyer IS serious or he or she would not have made an offer. Several things have happened before this offer came in. The buyer, with his agent, has researched the market,
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Keeping Your Credit Clean Many homebuyers frequently wonder, "If I am shopping for a home loan will my credit be affected each time a credit report inquiry is made?" It's a logical and intelligent question to ask; the answer is: not significantly, if the credit checks are done in a short period of time. When a credit check is made by a potential lender it is called a hard inquiry. When a hard inquiry occurs it does have an impact on your credit score. However, when you're shopping for a mortgage or a car loan, credit bureaus typically cluster the hard inquiries together because the credit reporting bureaus understand that the consumer is shopping for the best loan. "So for example, if you're shopping for a new mortgage and three potential lenders pull your credit score within three weeks, that is looked at as one inquiry for that purpose," says Steven Katz a spokesperson for TransUnion's TrueCredit.com. Keeping your credit clean is critical. Katz offers the following advice to help ensure healthy credit. One card you should not carry. Leave your Social Security card at home. "There is basically no reason that you need to carry that with you," says Katz. Most people have their Social Security card number memorized. If
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Energy Saving is Consumer Key Interest in Green Building Why are consumers interested in green building? A survey conducted for the National Association of Home Builders (NAHB) confirms that a desire for greater energy efficiency drives consumers to choose a green-built home. The survey, conducted during the week of Oct. 15 by the Public Opinion Strategies, involved asking 800 registered voters nationwide about how important certain items would be in their decision to either purchase a new green home or remodel their current home to be more "green." Nearly two-thirds or 64 percent of the voters polled said that "reduced energy costs" would be the most important. The second-highest scoring reason, at 55 percent, was "because it would be healthier."
CONTINUED >>>Local Market Conditions
Daily News and Advice -->Read about the events shaping the Real Estate market today, find current interest rates, or browse the extensive library of advice and how-to articles written by some of the top experts in Real Estate. Updated each weekday.
More Articles

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Bonnie Fagoh E-mail: bonniefagoh@century21beggins.com Web: http://www.tampacoastalhomes.com Cell: 813-390-7606
Century 21 Beggins Enterprises 813-390-7606 6542 U. S. Hwy. 41 N.Apollo Beach, FL 33572
Equal Housing Opportunity


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