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

Thank you, Mr. Chairman. I certainly agree that policy is well positioned, and we should leave it exactly where it is. Markets have come around to our view, and I think our objective in the statement should be to keep market expectations aligned with our view and not to change them.

In terms of the statement, I think that the current draft is very much improved relative to the Bluebook, and I have no problem in supporting the current language. I like Governor Kohn’s proposal; I think that it is a worthwhile change. I do, however, share many of President Plosser’s concerns and think that we will have a lot of difficulty going forward. Markets are wondering what our long-run inflation objective is. They will certainly note the omission of the term “somewhat elevated.” It will raise a question about whether, if core inflation were to stabilize at 2 percent, we would be satisfied with that or we would want to see it move lower. This statement is very cleverly crafted, and I think it succeeds in finessing that issue for today. I don’t have a problem, really, with finessing it for today.

My own proposal was designed to say to markets something that I thought we could say without actually coming to full agreement, even within the Committee, about whether we have a single long-run inflation objective. Even if we don’t go announce a numerical inflation objective, our statements need to be consistent with the projections that we will be issuing publicly. President Plosser pointed out that we will be issuing a two-year projection that does show inflation coming down. It seemed to me that we could therefore remove the term “elevated” and still say, as our projections in a couple weeks will confirm, that the Committee expects underlying inflation to come down further without saying exactly how far. But I don’t feel strongly about such language, and I think alternative B does a good job of resolving the problem for today. We will wait until another day, when we will have to face this again.

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