Thank you, Mr. Chairman. I think what I heard yesterday was consistent with what I was thinking myself. We are in a pretty good spot, macroeconomically and policywise. We have moderate growth; low core inflation, which is not rising and could possibly be falling, suggesting an underlying balance of demand and potential supply that is in pretty good shape. Total inflation is high, but unless the futures markets are wrong again, total inflation should come down to core, and core is telling us that the balance is about right. I didn’t hear anything yesterday in the forecast or in the anecdotes—some were strong and some were weak—to contradict this picture or to suggest that we have any need to adjust policy. So I strongly support alternative B.
Markets now roughly agree with our outlook, at least in terms of their expectations for the federal funds rate and judging from our submissions on the forecast process. I don’t think we should be trying to change those expectations. I share everyone’s concerns around the table about the risks on inflation. Even if I don’t always share everyone’s goal for where we might be going in the next few years, I think the risks are clearly pointed to the upside given the tightness of domestic and foreign markets and the increase in headline inflation, which could feed through to inflation expectations.
I like the alternative B language as it was handed out by Vincent yesterday. It is consistent with yesterday’s discussion that focuses on the forecast of inflation in sections 3 and 4. It reflects our unease about whether recent improvements will be sustained. I think it should leave expectations approximately where they were, although I don’t have any confidence whatsoever in that judgment—I have been wrong too often for too many years on these things. I do think it has the virtue of reflecting our discussion yesterday. I have one suggestion for sentence 3 in section 3, which I think makes it a little closer to last time in terms of wording. In the second sentence—“however, a sustained moderation in inflation”—well, is that core or total? What is that about? I think we should go back to “inflation pressures”: “However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated.” That is what we talked about last time—inflation pressures. Then, “moreover, the high level of resource utilization has the potential to sustain those pressures.” I don’t think we need the word “inflation” twice. So with that small amendment, I think alternative B language should do the trick. Thank you, Mr. Chairman.