FRBSF University Symposium

Board of Governors

Governor Randall S. Kroszner

Chris Clark

Heidi Downs

Travis George

Jim Mignano

Finian Small

Current US Economic Conditions • Deceleration of GDP growth

– Consumer spending slowing down– Decrease in residential investment

•Largest decrease since 1991– Inflation is still under control

FRBSF University Symposium

Current US Economic Conditions

FRBSF University Symposium

Percentage Change in Real GDP and Related Measures

-20

-15

-10

-5

0

5

10

15

20

25

2004-Q1 2004-Q2 2004-Q3 2004-Q4 2005-Q1 2005-Q2 2005-Q3 2005-Q4 2006-Q1 2006-Q2 2006-Q3

GDP

Res. Fixed Investment

Personal Consumption Expenditures

Gross Private Domestic Investment

Government Spending

Current US Economic Conditions

• Fed Funds Rate: 5.25%

• Low unemployment

• Personal income increased

FRBSF University Symposium

Current International Conditions • Improving current account

– Shrinking trade deficits

• Worsening capital account– Shrinking capital and investment net

inflow surpluses

FRBSF University Symposium

Summary of Decision

• Domestic conditions are stable

• International markets are moving toward equilibrium

• A rate increase would only serve to disrupt natural market corrections

FRBSF University Symposium