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

Thank you, Mr. Chairman. Like you, I am increasingly concerned about the downside on the economic growth side of the equation. I would very much appreciate— perhaps all of us would appreciate—getting sort of a transcript of the numbers you gave us and perhaps some of the BIS data between now and the time we meet because it might be most helpful in our analyzing the situation. I just have a couple of comments.

First, I agree with President Stern and President Lacker—this is not the time to make a decision that is of this import. I think it would frighten the markets, and it would perhaps add to the urgency of concern that you are concerned about. In other words, it would compound our problems rather than solve our problems. I am not sure where I stand as far as the upcoming meeting is concerned. I would like to get some more data. I think we will have a little more inflation data by that time. We will have a better sense other than just the employment numbers and, again, if we are able to study what you learned at the BIS, will be better informed. I don’t like the idea of making a decision of this nature outside normal channels. In fact, I think the impression that you, sir, have given directly to the markets is that you don’t feel comfortable either making a fed funds decision outside the normal channels.

I am always concerned when we talk about what market expectations are because in this recent cycle, and the mood that the market is in, as one of my friends put it, we give the market a gift of a rate cut and then they burst into tears and run outside the room after they have unwrapped the package. I think we have to be very careful here about thinking that we are going to satisfy markets somehow. I don’t think the market is in that kind of mood, and my experience as a market operator indicates that, almost in any context, we are not going to get it just right with markets. I think we have to do what is right for the economy.

The other point I would make is in terms of the 1990-93 experience and the 2001 experience. This is something that we need to think through a bit further, at least here in Dallas. There is a difference in the sense that a lot of the inflationary pressures we are feeling are demand-pull inflationary forces that are coming from newly emergent economies that are at a point in their growth cycle where they are kicking in to caloric and BTU intake at a much faster rate than the rate that they are growing. If we were a closed economy, of course, the issue of labor prices and so on would bear an enormous amount of weight, and the concerns that have been expressed would be most consequential. They are still consequential, but I am not convinced at this point in the evolution of the global economy that we are likely to see as much mitigation as the staff is forecasting. It is just a question mark, but I think we should be aware of it. So, in summary, I don’t think we should decide at this meeting. I think it would be the wrong signal to send. It goes outside the norm, including the norm that I believe you yourself have expressed.

On the questions you asked about signaling, we just received a memo from the representative from Nashville—that is, Governor Kohn—about being very careful what we signal in our speeches. I think that is a very delicate thing to do, Mr. Chairman, in terms of building expectations that may or may not be fulfilled or may be misinterpreted. So I have the same concerns that President Lacker expressed on being proactive.

One last comment. No matter what you say, and in terms of representing our views and your views, it is very, very important to remind everyone that we have a dual mandate. The mandate is, of course, about employment growth, but we also have a mandate on the inflationary front. I still have concerns that we might be planting some seeds that could later germinate more rapidly than we would like to see them germinate if indeed we don’t have the kind of weakness that we are all afraid of currently. So I think it is constantly helpful, especially coming from you as our leader, to make sure that we reinforce the dual mandate without scaring the markets that we are not aware of the potential tail risk of severe economic weakness. Thank you, Mr. Chairman.

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