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

Thank you. I support alternative B with the amendment that Governor Kohn suggested, so I am very comfortable with that. The real issue for me here is one that I think has been expressed by several others, what President Plosser called the “elephant in the room,” which is that writing the statement is getting harder and harder. I think that we have a brilliant fudge this time around, but it is not going to work forever.

There are two senses in which I have a problem with this statement. One is the issue of the appropriate level of inflation that we should be shooting for. This is really two separate questions. One is what we do about communication outside, but there is also an issue about consensus inside the Committee. I would find it much easier to agree to statements of certain types if, in fact, there were a consensus. As many of you know, I am actually comfortable with an inflation number of 2 percent. On the other hand, if the Committee comes to consensus for a lower number, I would be more than happy to be comfortable with that. In fact, I would be willing to have a statement that would reflect a lower number. I sense that this is true for other members of the Committee—some who might be caught on the dovish side with 2 percent while some members are on the hawkish side at 1½. But the difference between the hawks and the doves here is extremely slight. In fact, from more than five feet away, you couldn’t tell the difference between a hawk and a dove. [Laughter] That’s one issue that is very important. I think it is going to become more and more difficult as we go forward, as long as inflation evolves in the way that we expect. I mean, we could have bad news—inflation could actually start rising—and we’d have a different kind of a problem. But let’s hope we don’t get into that problem. We want dealing with the good news to be the problem.

The second issue relates to core versus total. I am quite concerned about the emphasis on core, not because I don’t think it is very important to communicate about core, particularly when you get a big shift in something like energy prices and you don’t want to unhinge inflation expectations. In that context, we need to talk about core so that people understand that the currently high inflation rates, in terms of things they care about—going to the gas station or going to the supermarket—are not actually something that should change their long-run inflation expectations. That’s why the use of the core measure makes a lot of sense. The problem is, as I read the research, that no one measure of core will always be good. In fact, the core measure that we have evolved to has a lot of history behind it, but it is not clear that it will be the best measure in all cases. There are certain alternatives that I think will work in some cases—a trimmed mean may sometimes be appropriate, but at other times it will not. So I think there will be a key problem, as has been discussed today, which is that at times one core measure may make more sense than another core measure. Our whole discussion is very much in terms of a particular core measure that excludes food and energy. That measure will sometimes be problematic for telling us about long-run trends, particularly if we think that energy changes are more permanent or crazy policies about ethanol may be having a more permanent effect in terms of food prices. In this context, we are going to have to deal with exactly this issue going forward. Also, a problem is that people do consume a lot of food and energy, and it is very peculiar to act as though we don’t care about that.

So I think that we have to grapple with these issues. They are part of our communication issues. The bottom line is that we are fooling ourselves if we think that we are going to get away forever with not dealing with them. We will have to figure out some way of doing this. I think that we can do it because, in my reading of what people on the Committee have been saying, the differences here are actually fairly minor. It is the outside world that wants to make them into a big deal because doing so sells newspapers. But we do need to get to some consensus on these issues so that the outside world sees that the Committee actually has unity rather than differences. Thank you very much.

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