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

Thank you, Mr. Chairman. I also think that your straw-man proposal really does strike the right balance, and I strongly support it. We probably owe it to you between now and the fall, or whenever you feel appropriate to be able to go forward with an announcement, to keep our discussion in this room. Our confidentiality around this discussion for the past year has been incredibly helpful, and it does strike me that your ability to frame something that fairly represents your views and our views without having any of it previewed by us, wittingly or unwittingly, is awfully important.

In terms of additional reasons that I think we have the right balance in your proposal, there has been a discernible difference in the markets in putting data- dependence into practice. In seeing how the financial markets have reacted to data sets and how they have struggled with what those data have meant, I think that they seem to have come a long way from a year or two years ago in understanding how we process data, rather than looking at the width and depth of our briefcases or the winks and nods of our statements. I can’t help but think that we have really made some progress down that path. By putting the projections first and foremost on our list of deliverables to come, we are going to continue to ask them to do their own homework as opposed to relying on us. If we were to go a step or two beyond that at this point, we might undermine some of those good market practices that are starting to bear some fruit.

The markets judge us by our actions and not by our words, and that is why I must say that I don’t think any of these iterations or any of these proposals that we have discussed is a panacea in and of itself. These proposals and iterations constitute an appropriate framework for us to continue our dialogue with the markets. By taking this next step we are going to put some of our words into action by generating these projections quarterly and seeing what responses we get. I tend to think that we are going to learn quite a bit through that process. As others have said, while the economic environment is apparently benign, I think that the political environment and the financial markets are probably somewhat less so. Maybe that suggests to me another reason for taking appropriate steps and not going beyond them at this point. Finally, I don’t think the financial markets are asking for more than your proposal suggests. I think Tim has it right in some ways—they are still just asking for the answer key. What we are doing here is finally telling them that we are not going to give them the answer key but that we will tell them more about what we’re thinking. That will be more than sufficient to that constituency, and over time we can revisit what we are doing.

In terms of details, I will refer to only three items. First, on whether we should be making our projections under appropriate policy or sharing a fed funds rate path, I am incredibly concerned that policy forecasts would be misunderstood to be policy commitments. Again, I think that would undermine much of the good work that we’ve done. Second, regarding the anonymity of projections and the points that President Fisher made, I am a little uncomfortable with even these numbers of 1 through 19 with each of our projections because I think that the veil that we have around us could well be pierced. Another way for us to get the benefit of that might be for us to individually submit our projections to the staff. Then when the staff circulates them for us to review, they would have the projections aggregated to the extent that we can see granularity but not be listed as numbers 1 through 19. Obviously, that can be done a lot of ways. But I am very concerned that, if we were to go with individual projections, we would have calls and speculation that would make us all hunker down and somehow explain why we are where we are and be somewhat less interested in hearing where our colleagues are or in modifying our projections over time. So I would favor even a step back on anonymity—but only enough, obviously, to give us a view of where our colleagues are.

Third, the question that requires probably the most time among the issues that have been raised is the third year versus some three-to-five-year average. I could change my views on this, but my instinct is that, if we were to adopt a three-to-five-year window for that set of data, it might look just a little too cute. I would prefer that we all do our best to say, “This is about projections.” As we get into a third year, our crystal balls are cloudier than they are over shorter periods. Over time, if we were to do that with a third year, in our own ways and our own speeches, we could be elaborating on what that third year means to us. To some of us it might be aspirational. To some of us it might be opportunistic. But I would hesitate to go further than that at this point. But, again, I think this is the right path forward, and obviously discussion will continue. Thank you.

Keyboard shortcuts

j previous speech k next speech