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

Thank you, Mr. Chairman. I favor alternative A, a 50 basis point cut in the funds rate. This action, and even more, is justified by the dramatic developments since our last meeting—a deepening of the recessionary outlook worldwide, the near meltdown of the global financial system, and the abatement of inflationary pressures. Frankly, it is time for all hands on deck when it comes to our policy tools, and the fed funds rate should be no exception. Although we cut the funds rate 50 basis points a few weeks ago, the Greenbook inflation projection was revised down more than that, so the ex ante real funds rate actually edged up over the intermeeting period.

We need to do much more and the sooner, the better. One might argue against such a policy move in favor of a wait-and-see approach to better gauge if the recent flurry of policy initiatives will turn things around. In normal times, I would have some sympathy for this argument, but these are about as far from normal times as we can get. We are in the midst of a global economic and financial freefall, and the confidence of households, businesses, and investors is in shambles. The adverse feedback loop is playing out with a vengeance. Lenders continue to ratchet up terms and standards, sapping the ability of households and businesses to spend. As the economy weakens, further loan defaults will mushroom.

I think strong, clear action is needed. Historical precedents, such as the case of Japan, teach us that it is a mistake to act cautiously as the economy unravels. I think the clear lesson from both economic theory and real-world experience is to lower rates as quickly as possible to avoid a deeper and more protracted recession, not to keep our powder dry or to wait to use tools until later if they are available to us now. The more medicine we give and the sooner we give it, the better. The Bluebook optimal policy simulations tell us that, absent the zero bound, the funds rate should be lowered well below zero next year. Since that is not an option, we should do the most with what we’ve got and cut the funds rate aggressively now.

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