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

Thank you, Mr. Chairman. I largely share your assessment, so let me just make a few comments about the situation as I see it and about the timing of our action here. I have talked frequently, of course, about the resilience of the economy. But I need to remind myself that that resilience isn’t infinite, and it appears to me that the fundamental positive momentum of the economy is diminishing significantly at this point. This likely will affect not just the next quarter or two but the intermediate-term outlook as well. Moreover, we shouldn’t lose sight of the fact that at least some of the economy’s much-vaunted resilience is arguably the effect of appropriate policy responses in the past. At least we can’t dismiss that possibility, and so we need to bear that in mind as we consider our actions going forward.

I think you made an effective case that resilience in this situation could be further inhibited by potentially serious problems in the banking system. I have been concerned for a long time, as you know, that we don’t have incentives right there. While certainly this isn’t proof of anything, I guess we can’t dismiss the possibility that some of the chickens are coming home to roost, and that could affect the outlook as well. Also, attitudes, at least in some quarters, seem quite sour today. In particular, the closer people are to Wall Street, the more negative the attitudes appear to be. So all of this suggests to me that the outlook at the moment is not very promising, and a significant policy response on our part is appropriate.

As far as the timing of action is concerned, I do think on balance it is preferable to wait until the end of the month. Other things being equal, I’d like us to be seen as proceeding in an orderly way. Also, if we do that, I think it will provide the opportunity for a more thorough discussion of the economic and inflation outlook and a more comprehensive consideration of the state of the economy, the potential policy path going forward, and the production of a coherent statement at the end of the day. So for all those reasons, on balance, I would prefer waiting until the end of the month.

One footnote, since you mentioned it—this is a discussion for another day—as you know, I viewed at the time and I continue to view the 2003 disinflation experience a bit differently than you do, and I think we may want to be careful about the lessons we draw from that experience. Thank you.

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