Thank you, Mr. Chairman. Just a few notes. First, on financial markets and financial market functioning, I think as Bill Dudley suggested that they are much improved from our last meeting. I take that as a very, very good sign, and I think that the improvement in financial market functioning will be useful to us to help calibrate the effects of changes in monetary policy. We spent some time even today talking about where we are on some range between neutral and accommodative and where we want to go. When the markets aren’t working, then any policy that we could conceive of would in effect be restrictive, if the markets weren’t willing to take our action and do something with it to provide credit. So I think we were right to focus on getting the markets back to work, which is a process that isn’t complete, but I think the trends are our friend there. Second, concerning financial intermediaries, I would underscore the point that the Chairman made at the outset. The problems among large financial institutions are very serious, and unlike financial market functioning, which has improved, I think the state of these institutions has not improved since we met last. While it is true that they have been raising capital, both in the form of equity and convertibles, the process of writedowns and capital-raising is far, far from being complete. I think we continue to have some headline risk, both in the United States and among non-U.S. institutions, between now and our meeting at the end of the month as well as throughout the first quarter.
The good news is that the real economy data have superseded those data with respect to financial institutions. The bad news is that these top twenty or so institutions are still largely ill- equipped to facilitate credit or to be shock absorbers here to any great degree. If you think about that in terms of other shock absorbers that might be available, including fiscal policy, I think there is reason for the seventeen of us on this conference call to feel relatively lonely in thinking about policies that can be brought to bear, both from the private sector and the public sector. With respect to the real economy, even if one isn’t as pessimistic in terms of probabilities of a mild recession or as pessimistic on the chance of a really, really ugly scenario much more dire than that, I still think that risk management suggests going in the direction that the Chairman emphasized for reasons that have already been discussed by many others on this call.
As I mentioned, I think there is more burden on monetary policy as I think about fiscal policy and some of these other measures. That gives me a view that perhaps we should be erring on the side of reaching for a little more by way of rate cuts than we would in a parallel universe where we had financial institutions and fiscal policy that were likely to be quite useful. I’m somewhat less certain that either of them will be able to stand here in the fray. With respect to tactics, I think the right course of action is, as Governor Kohn just referenced, for the Chairman to provide some direction to the markets in his speech. That direction will not be perfect. They will not understand exactly our posture, but I think they do need to hear from him a sense of where we are collectively, and tomorrow provides a really good opportunity to do that. It would be good for them not to be surprised to any great degree when we meet in a few weeks, and I think the Chairman will rightly focus them on the real economic data. So as the data change, their own expectations of policy could change as well. Governor Kohn talked about the possible erosion in confidence in our ability to put policy in place, and I think that by meeting today and hearing one another’s views, having the Chairman go tomorrow, and then meeting to finalize our judgments on policy action, given all our constraints, is the best course of conduct. Thank you, Mr. Chairman.