ANNUAL REPORT 2002 Federal Reserve Bank of Dallas
ALETTER FROMTHE PRESIDENT
2002 was not the best of years. Thepall of September 11 lasted all year andbeyond. We had to adopt security meas-ures and change our behavior in waysthat eroded our personal liberty andeconomic efficiency. These necessarychanges may not have reduced GDPmuch, but they lowered our standard of living nonetheless. GDP isn’t everything.
The Economy in 2002
Following the 2001 recession, eco-nomic activity expanded throughout2002, but not vigorously enough to sus-tain or promote employment growth.Increases in output and income weredriven by continued gains in productiv-ity.Although the unemployment rate never exceeded 6 percent duringthe year, the recoveryso far has been a jobless one. Productivity gainsmay substitute for job growth in the short term when the economy isweak, but they augur well for a higher standard of living in the long runwhen both productivity and job growth are rising.With aggregate demand too weak to stimulate job growth, monetarypolicy in 2002 did not reverse its accommodative stance. In fact, theFOMC reduced the federal funds rate another half percentage point inNovember, bringing the target rate down to 1.25 percent. Inflationremained subdued, however, with continued disinflation giving rise insome quarters to concerns about potential deflation.
The Fed and Banking
Banks in the Eleventh Federal Reserve District, like those in thenation, are generally in good condition. Unlike the aftermath of the1990–91 recession, there has been no hint of a credit crunch to hindereconomic recovery. The operations of the Federal Reserve Bank of Dallas remained on asound footing during 2002, although we did experience a slowing inthe volume of checks processed. After years of anticipation, electronicpayments transactions have finally made a dent in paper check vol-umes, and we are having to adjust our check infrastructure. When thechurn affects our own employees, we have to remind ourselves that atransition from paper to electronic payments is probably good for thepayments system overall and has been a goal of the FederalReservefor many years. Watch out what you ask for. You may get it.