Statement by Silas Keehn, President, Federal Reserve Bank of Chicago, before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, March 10, 1993 - Statements to the Congress - Transcript

Federal Reserve Bulletin, May, 1993

I am pleased to be here today to discuss economic conditions in the Seventh Federal Reserve District and to comment on my views on monetary policy. The Seventh District, which includes all of the State of Iowa and most of the States of Illinois, Indiana, Michigan, and Wisconsin, is an economically large, important, and diverse region, which both reflects and drives a substantial portion of the U.S. economy.

By any measure, the District ranks as a major economic force, and, therefore, conditions in the District directly influence my views regarding monetary policy. And, in turn, monetary policy actions have an important impact on economic activity in our District.

The five District states account for about 14 percent of the nation's GDP and 18 percent of U.S. manufacturing employment. The District produces 45 percent of the nation's automobiles, 30 percent of the trucks, 38 percent of the nation's steel, and more than 40 percent of the country's farm machinery. Farmers in the Seventh District account for nearly one-fifth of the nation's annual sales of farm commodities and half of the corn, soybeans, and pork produced nationwide. The District is the headquarters of some of the largest firms in the United States in manufacturing, retailing, and financial services.

Given its size and diversity, it is not surprising that the District mirrors the economic challenges and opportunities in the U.S. economy as a whole. Consequently the District, as the nation, has been experiencing significant difficulties in maintaining an adequate rate of real growth. District performance has improved, but the pace of improvement continues to be impeded by further financial and industrial restructuring.

Monetary policy requires two things above all, a solid assessment of where we are and a sure sense of where we should be going. Both of these questions require contact with businesses and individuals and cannot be derived solely from statistics and theory. While our Bank follows the publicly released data very carefully, we rely very heavily on information sources and contacts within the District to determine current and prospective conditions so important to the development of the appropriate monetary policy to deal with changing economic circumstances. It was only by maintaining close contact with our District that it has been possible to go beyond the economic statistics to an understanding of what has really been going on in the District's economy and in the nation as a whole.

The Federal Reserve Bank of Chicago is deeply involved in monitoring and analyzing economic developments in the District on an ongoing basis with a variety of fact-finding initiatives. In addition to the very valuable input from our boards of Directors in Chicago and Detroit, we have set up a network of advisory and contact groups. The Reserve Bank assembles regional data to provide a quantitative base for regional analysis, drawing from government sources and business in the District, and we have developed our own measures, such as the Midwest Manufacturing Index, to track District economic activity. Some years ago we formed Small Business and Agricultural Advisory Councils to obtain continuing and very important input from these large sectors of our economy. In addition, the Bank has established a network of Industrial Roundtables to provide information about emerging business conditions. Industrial Roundtables now meet in Chicago, Detroit, Milwaukee, Grand Rapids, and Kalamazoo. The Detroit and Chicago groups include corporate economists from some of the largest companies in the District. The Milwaukee and western Michigan groups include chief financial officers and corporate planners from the diverse and important companies located in these areas. In addition, the roundtables include contacts whose businesses are leading indicators of economic activity throughout the District. These roundtables are a direct link to about 100 companies and trade associations in the District and provide timely insight into current conditions and emerging market trends. By integrating economic data with direct corporate and small business contacts, we are able to make a comprehensive analysis of the economic trends and current conditions in the District and from that develop a factual basis for my recommendations on monetary policy.

In addition to our formal roundtables, the Bank works together with those public sector and quasipublic groups that are struggling to revitalize the region's economy. Collaborations with the Wisconsin Strategic Development Commission, the Iowa Business Council, the Commercial Club of Chicago, and the Council of Great Lakes Industries are examples of organizations working to rebuild the District economy. Such efforts yield a lasting return to us. Through our personal participation, we establish a relationship of trust and open important avenues of communication with other analysts of areas within the region that enhances our knowledge of issues important to our District.