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

Thank you very much. As I mentioned yesterday, I think we have seen some very welcome signs of moderation, but it is certainly too early to declare a victory. That is certainly very clear in the Greenbook, as many of you emphasized. I also agree with Governor Kohn that we are in a reasonably good spot with moderate growth likely going forward and inflation and inflation expectations reasonably contained. It is reasonable to think that they may be going down, but there’s a lot of uncertainty, and most of the uncertainty is to the upside. It is sensible to acknowledge reality, and we should take out the word “elevated” so that we are not seen as inflation nutters. We should acknowledge that some of the numbers have come down but be careful about saying that we are done, we are happy, or we are satisfied.

As I mentioned yesterday, an upturn in owners’ equivalent rent could be coming. There could be some uncertainty about pass-through to core of the higher energy prices that we have been seeing. There is continued strong world demand, and there could be some lagged pass-through effects of the previous declines in the dollar. I see all those as risks to the upside, and so I think it’s important to convey that we are still concerned about those things. That said, I am very supportive of where we are with alternative B, in terms of both the policy and the message that is coming from it.

The type of amendment that Governor Kohn mentioned is one that I very much support for a number of reasons. One, as he mentioned, it is more forward looking. I think it is much better to talk about a sustained moderation in inflation pressures rather than inflation, because that gets us out of explaining specifically what we mean by “inflation.” It’s a little bit more general. If we had a clear goal, it would be beneficial. Given that we don’t have a clear goal, I think talking about pressures is good. It also has the value of being forward looking. Two, the amendment fits with President Stern’s notion that we should try to keep as much in parallel with the previous statement. So mentioning moderation in inflation pressures—I’m not sure I wrote down properly whether Governor Kohn suggested in the final sentence of section 3 “the potential to sustain those pressures,” taking it back parallel to what we had before, or whether he said “sustain inflation.” So I would certainly agree with “those pressures.” Three, putting in “pressures” gets us out of the potential for getting stuck. Here we are saying “sustained moderation in inflation has yet to be convincingly demonstrated.” Well, if we take that out at some point, then we will be admitting that it has been convincingly demonstrated, or at least markets might interpret us as saying that. I think that gets us into a bit more of a box than I would like, and so talking about inflation pressures avoids the market’s taking an implication that if we remove that at some point we have said, “Okay. It is convincingly demonstrated when for six months it is below X or below Y.” I think since we haven’t articulated a goal yet, we don’t want to get into that box, but I do think that would be one of the values of articulating a goal. Thank you.

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