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

Thank you, Mr. Chairman. As I listened to the first go-round comments, I charted everyone in a quadrant chart with high risk to growth and benign inflation in the upper left-hand corner. Then, I had of course three other squares or quadrants, and so far I am seven for eight listening to the remarks. So maybe this predictive power has some influence or some spillover into how I come out on this. I don’t suppose 37½ would fly. [Laughter] You know, on balance I find myself in the upper left-hand quadrant, more concerned about downside risk to the economy and viewing, at least for the present, inflation as a relatively benign consideration. So given my sense of the downside risks and the uncertainty that is associated with the financial markets, my recommendation is 50 basis points at this meeting, and my preference is to remain, as much as possible, agnostic on the January action. I take note from the advice I get from some of my own staff that Taylor rule projections suggest that the medium- term nominal equilibrium rate is about 4 percent, and 4 percent comes the closest to being the likely neutral rate. It is relatively likely that incoming data will suggest that a cumulative cut of at least 50 basis points is warranted by the end of January. So in my view, moving to that rate now is really the most prudential. In some respects, that is the most conservative and risk- attentive policy. I continue to adhere to the risk-management perspective in dealing with our challenges, and continuing to take out insurance against extreme downside scenarios seems correct to me. Notwithstanding the view that the Fed is, and should be, reluctant to take back a rate cut, I prefer facing up to that difficult decision possibly next spring to undershooting the needs of the situation and potentially compounding the problems. So I don’t see a lot to be gained from an incremental approach of 25 basis point cuts. It has been argued with much validity that overnight liquidity isn’t really the problem and won’t cure the information gaps that beset the market. But I would argue that, given the profoundly unsettled state of the financial markets, erring on the side of more-aggressive action provides some insurance against continuing liquidity seizures. To the extent that psychology and confidence matter—and I think they matter a great deal in these circumstances—it is on its face a stronger message.

Regarding the statement, I actually prefer alternative B. I think the finessing, if you will, of the balance of risks and its mention of increased uncertainty come closest to my views. So I suggest consideration of the thrust of alternative B, possibly with the insertion that Brian mentioned, connected to a 50 basis point policy action. Thank you, Mr. Chairman.

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