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

The answer to that is “yes”—it is certainly possible. Obviously, it is very difficult to separate things that might actually have changed the transmission channel of monetary policy from just big financial developments that have offset the beneficial effects of easing policy. We built an assumption into the baseline forecast that GDP responds close to the average response to a fed funds rate reduction, as would normally be the case. The one small technical area in which it seems as though the effect almost certainly would be smaller is that, with the equity premium so high right now, any given change in the funds rate is likely to result in a smaller change in the required return on equity and probably a smaller stock market response than you would normally get. So I think, basically, it is certainly possible, but in our forecast we have assumed that the additional reductions will have GDP consequences along the lines of the normal response.

Keyboard shortcuts

j previous speech k next speech