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

Thank you, Mr. Chairman. The FOMC is badly in need of a stopping rule on the federal funds rate. Continued reaction to bad economic news—and there is likely to be bad news in the coming months—is going to set up serious future problems for this Committee. The fragile credibility of the Committee is being eroded as we speak, and we will do well to take steps to reassert inflation-fighting resolve at this meeting.

The intuition in dealing with the current crisis is that we can use new lending facilities to help return financial markets to more normal operation and that interest rate policy is not that likely to help on this dimension. But exceptionally low rates can create new problems. Since lower rates are not really helping directly with the smooth operation of financial markets, I suggest that we put that on hold for the time being and let our past, stunningly aggressive, interest rate moves have an effect through the summer and into the second half of the year. This would be consistent with alternative C in the policy alternatives.

Many participants have emphasized that there will be a long unwinding process. The Chairman described us as being in the third inning on this, similar to the late 1980s and early 1990s. During that episode, the Fed went on hold at 3 percent, considered an exceptionally low rate at the time. That gave financial markets a chance to heal following the S&L problems without creating other problems for the mid to late 1990s. In retrospect, this policy worked quite well during that era, and it seems to me that something similar could be done today at the current level of the federal funds rate. Thank you.

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