Thank you, Mr. Chairman. Well, I’m last in this line, and I’ll try to be brief so that we can get to dinner soon. I do see signs of stabilization in the housing market, and the way to think of it in terms of spillovers is that we ...

Thank you, Mr. Chairman. Just let me talk a little about monetary policy, and I’ll be brief there. But then I have to use my opportunity to raise some issues for the Committee when I’m not here. I do support alternative B. As is obvious from my earlier ...

Well, I get one more chance in the policy round. That is the one I am going to really go for. I am sure that people are waiting for it. [Laughter] My modal forecast has not changed appreciably. Clearly, I am very concerned about the headwinds as a result of ...

I think there’s no question that headline inflation is very high right now. Clearly, when you get these kinds of increases in energy prices and food costs, you’re going to have to reflect them in current prices. In fact, that’s exactly what you need to have happen ...

Yes. Thank you, Mr. Chairman. I agree with the basic point that it’s very important to recognize that we do not want a lot of these facilities to be permanent and that at some point we will need to remove them. I do worry about the issue of creating ...

Thank you, Mr. Chairman. I also strongly support the short-term strategy that was laid out by the Chairman. I don’t see that we really have an alternative in that context. There are a lot of issues here. The reality is that this is super complex, and we have a ...

And it will come out in the minutes.

Before the python gets it. I think another consideration is very important. I have to commend you on the Bluebook this time—it just had some great boxes. [Laughter] It would be nicer if they had a little color to them. As a textbook author, I think they could have ...

Thank you, Mr. Chairman. I do support alternative B and the current language in the statement. I have no problem with that. I think it conveys what we need to convey. Although I think that the next move is very likely to be up and it maybe should be done ...

Four quarters ahead.

Just a quick question: When you do this based on the Greenbook projection for headline inflation, how far forward are you going with headline inflation?

Thank you, Mr. Chairman. Well, we have seen recent data that actually have been stronger than expected. Also as time goes on, there seems to be a lower probability of financial meltdown and these adverse feedback loops that we’ve all been discussing. But I don’t think we want ...

I am very comfortable with the analysis and the approach, so I don’t have any major comments there. Although in the white paper you might mention them, I would like to take options 1 and 3 off the table. Option 1 has just too much administrative burden. We have ...

Okay. Thank you.

But in the context of the law, we would have the ability to adjust these parameters.

Right. You could raise the cost of daylight overdrafts, or you could adjust the interest rate that you pay on reserves to get it right. That could solve the problem.

Right, and that would be the answer.

So let’s say that actually happened, that they were zero. Then what? Let’s say we implemented this and they came out at zero. What are our options?

The Bank of England has used a procedure like this. What has been their experience? Again, it may not be completely comparable.

It is five or six banks, right.

I’d like to understand this issue in terms of the voluntary targets. How are they deciding on these? Clearly a big part of the issue is whether or not they choose you. I was just completely confused about what their considerations in choosing these numbers would be and what ...

I have seen a canary. But the key is that the canary has not keeled over. In fact, if you look at what’s going on in the financial markets, the concerns in terms of inflation compensation have dissipated somewhat. I think the fact that they were moving up is ...

Thank you, Mr. Chairman. Well, I’m in a very uncomfortable position here because I usually like to be very decisive, and I think in all past cases I’ve had a strong view before going into the meeting in terms of what is the appropriate alternative that the Committee ...

Okay. Good. Thank you.

Just to ask Bill a question—first the tall Bill, but the shorter Bill can answer afterward. [Laughter] On alternative B, you indicated that this would be very much in line with market expectations and, therefore, shouldn’t have much impact. I was wondering about the statement aspect, in particular ...

Then why don’t you take my slot, and I’ll come in after.

Is yours on this point?

But I do have a concern about the risk to inflation expectations because of the high commodity prices that we see. This is coming from the very adverse supply shock and the fact that we have had headline inflation so high for so long. The good news, by the way ...

Thank you, Mr. Chairman. My modal forecast is for a mild recession in the first half of 2008 and is very much in line with the Greenbook forecast. I am more pessimistic, however, than the Greenbook on the issue of recovery. Again, the issue is that we have had a ...

“Slightly” or “somewhat” risen.

“Have risen somewhat”?

We could use my “smidgen” word, but “edged higher” is better.

May I just ask a question back? I do think that inflation expectations are a concern. It is just a question of how the markets—and I am not as good at this as the people who really follow the markets—and the press will react to this phrase because ...

Yes, maybe two. Clearly, we are challenged by the fact that we have to balance the risks of both underlying inflation and inflation expectations going up. Against that, we have to worry about the downside risks to the economy, and the financial sector could really go south. So that is ...

Thank you, Mr. Chairman. Obviously, we are facing a very difficult policy problem, and that is why, Charlie, we will go have a beer later, so that we can deal with our depression.

You mean Pizza the Hutt, not Jabba the Hutt. [Laughter]

We’re always going to love you, come on. [Laughter]

PARTICIPANT. We don’t like being unpopular either.

PARTICIPANT. Happy birthday! [Laughter]

I think the issue here relates to the whole question about nongradualism that we’ve been talking about. Clearly, if we got lucky and financial markets turned around in a major way, then the stance of monetary policy would need to change, actually very rapidly. This is one of the ...

Yes. I’m not arguing that lowering the federal funds rate narrows these spreads a whole lot. It certainly works in that direction, but there is a big independent movement because of both fear in the markets and some liquidity concerns, which is why I think it is very important ...

I am done, yes.

Wouldn’t you like to know! I believe that actually the Greenbook forecast of a mild recession is reasonable, but the possibility that we could have a severe recession is uncomfortably high, and I find the prospect pretty scary. The reality is that we are in this adverse feedback loop ...

Thank you, Mr. Chairman. Well, I’m quite depressed. That’s not my usual personality trait, but the reality is that we’ve had as bad a set of shocks as I could have imagined, and I want to talk about this set of shocks. We have been hit with ...

Torture works.

But they could come back. I think subprime lending will come back under a different business model.

One quick follow-up on that—is one implication that we might take from this that structured products are just so complicated that they may never get good ratings or sufficiently good ratings, so the market really has to shrink? Could the rating agencies just fix themselves up so that they ...

There would still be problems.

Right. But this is the typical Federal Reserve cautiousness, and I am pushing you a little harder.

We could talk about Arthur Andersen, too, because I am going to talk about the more complicated issues of conflicts of interest. With plain vanilla conflicts of interest, if there is enough information, the market frequently can solve the problem because if you know that if you do what the ...

Actually, I wanted to focus on the same issue—conflict of interest. This is something I did a little work on in the past. When you look at the standard corporate ratings market, the move to have the issuer pay really did not create a problem in the market. There ...

Thank you, Mr. Chairman. As you know from my discussion of the economy, I think that we’re skirting a recession, but I see very large downside risks. When we looked at the Greenbook, I agreed with the view that the equilibrium fed funds rate has dropped substantially, at least ...