Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Good afternoon, everybody. Thank you for coming, and I am sorry about the awkward time. I am also sorry I wasn’t able to talk to many of you in advance of the meeting. I just got back from Basel yesterday, and so I have been out of the country. Let me tell you why I called this meeting. I have become increasingly concerned that our policy rate is too high to fully address the downside risks to growth. We have cut 100 basis points since September, and I think that may possibly have roughly offset the credit factors and the housing factors, but I don’t think that we can claim that we have done anything in the way of taking out insurance against what I think are some potentially significant downside risks. Meanwhile, since our last meeting in December, the data have been on the whole negative. The fourth quarter looks all right, but since then we have seen a number of indicators that the economy is sliding. So I thought it would be worthwhile for us to have an intermeeting meeting, so to speak, just to get an update on the situation and to have some discussion of our policy strategy.

As you know, we circulated a draft policy statement for the contingency that the Committee might want to act on rates today. After getting some feedback, and with some thought, unless the sentiment of the Committee to move today is especially strong, I am not going to propose a policy action at this meeting. What I would really like to do, instead, is get a sense of where the Committee is and a sense of your willingness to be somewhat more proactive in terms of addressing the downside risks that we are seeing in the growth situation. Part of the reason it is scheduled today is that tomorrow I have a sort of well-publicized speech on the outlook and next week I have a testimony. I would like to be able to give some signal of where the Committee is going forward toward the end of January. I think that would be very beneficial. The markets in part are suffering from just simple uncertainty about whether the Fed is willing to be proactive in addressing the downside risks, and I think if I am able to give some signal about our inclinations that would be quite helpful. So, in short, the purpose of the meeting today is not to take any action, but rather it is my attempt to consult with you, so that when I speak in public tomorrow and next week I will be representing the broad consensus of the Committee.

With that, I would like to begin with some short briefings by Bill Dudley in New York on markets and by Dave Stockton in Washington on the forecast—I think you received materials today—and then give time for Q&A. Following that, I would like, because I called the meeting, to give you my own views on why we need to be somewhat more proactive in risk management. Following that, we will open the floor, take comments, and sort of see where we are at the end of the day. I hope that works for everybody. Okay. If there are no comments, let me call on Bill Dudley to discuss the market situation.

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