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

Thank you, Mr. Chairman. I must say that I am sympathetic to the “hold” advocates and the view that we are already accommodative. I think an apt anecdote is a conversation I had in the past six weeks with a cruise line CEO who doesn’t know how to drive his ships but who has in fact been at the helm a couple of times. He said, “When you turn the wheel and nothing happens for several miles, the temptation to keep turning the wheel is overwhelming.” [Laughter] So I do have some sympathy. That said, I am going to support a reduction in the target rate of ¼ percent, effectively alternative B, as I indicated yesterday. I think it is pretty clear that we have a tradeoff between “a little more help to the economy” and “enough for now” and really some shift in our focus to combating inflation.

So let me lay out my rationale for not holding. I think there is still substantial downside risk to the general economy, and it may take quite some time for recovery to materialize. A quarter would help slightly to effect a lower cost of borrowing and, therefore, would stimulate activity, although much of that is really beyond our control. It will be dictated by market forces. I think that halting today versus conceivably halting at the next meeting risks some interpretation as a lack of recognition of the real state of weakness in the economy.

Regarding inflation, I think the core numbers in the first quarter were not overly discouraging, and I have to believe my own forecasts—in many respects, the forecasts I heard— that inflation will soften in the coming months and be consistent with our working view of expectations. I would say, however, that I am concerned that, in the minds of the general public, high prices actually translate into inflation, whether or not the rate of inflation has flattened.

As I have suggested, I am inclined to pause after this move, provided that the incoming data are not too adverse and too divergent from expectations, but with the caveat that I think a lot of shock risk is still out there and we have to remain flexible to deal with surprises. Holding or signaling a pause may help the housing market a bit by starting to construct a bottom, as borrowers or buyers begin to perceive that they shouldn’t expect any further rate cuts from us.

Regarding the statement, I think the rationale section in alternative B is appropriate to the situation that we face. Section 3 is a realistic acknowledgement of inflation trends and risk. I gather that, with the changes in section 4, the question was whether or not to signal a pause or an inclination to pause, and I tend to agree with a more cautious, less committal approach of the proposed language—what yesterday was called a “soft” pause. So I am, on balance, quite happy with the language in alternative B. Thank you, Mr. Chairman.

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