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

Thank you, Mr. Chairman. I, too, applaud your putting a concrete proposal on the table. With a Committee of nineteen, and as many moving parts as this could have, we could end up with a camel when we wanted a horse, and therefore having something concrete to react to is very helpful.

Having said that, I have looked at this question both at the strategic level and at the tactical level. Let me just comment on the strategic level first. The way I process the question is that it is based on principles in some respect, and some of the principle-based objectives are (1) transparency in governance is a best principle in general, and this moves in that direction; (2) it should enhance accountability; (3) it should enhance public confidence in our credibility; and (4) it should enhance the influence on outcomes—that is to say, it should have a grounding in results and the optimal outcome should involve somewhat less risk. I am trying to process the thrust of my decisions through that strategic prism. So I asked myself under what circumstances this could backfire, and I think the answer is perhaps that in periods of very rapid change, volatility, turbulence, severe shocks, and the aftermath of severe shocks, we could find this degree of explicitness and degree of openness problematic. But I don’t think we can manage to those kinds of contingencies. I think we have to manage more with a view of normal times.

I see here in the Committee some tension, as we address this question, between a mystique model of effectiveness, which perhaps optimizes flexibility and gives us an opportunistic posture and, therefore, is built around closed deliberation and a transparent, explicit, exposed, “out there” model. They both have some benefits in terms of our ultimate effectiveness. So I view it as a bit of a balancing act between those two. But, as I said, I support the thrust because I think the principle of transparency and accountability trumps that of maximum flexibility, if those two things under certain circumstances are opposed. I am influenced, Mr. Chairman, by your and Don Kohn’s sense that this is incremental. It is a step and, therefore, is adjustable. It may not be reversible, but it is at least adjustable, and that means that we can tweak the overall tactical aspects of it to get it to work as efficiently and as effectively as possible.

As to some of the specifics, yes, we should proceed. Four times a year seems right, and I think we have to line it up with the Monetary Policy Reports. I like the idea of total inflation because I think that is where people live for the most part. I see the narrative best done as an addendum. Regarding anonymity, I would say that not being anonymous might be too much disclosure, so I support anonymity. On the third year, I think of the third year as a statement of intentions. It is our intended steady state, if we can get there. I do see a tradeoff there: Having a single third year is more consistent with accountability, but it puts credibility a bit more at risk. So as I listen to the debate on that, I am somewhat influenced by Vice Chairman Geithner’s approach of allowing for more flexibility in the outyears. This is not a moon landing. We can’t be precise in where it comes out in the thirty-sixth month. We are in a world of shocks and uncertainty, so I, on balance, favor the idea of buying us some flexibility in the three-to- five-year timeframe. I like the qualitative characterizations, particularly of uncertainty, for the same reasons. I am not terribly in favor of accelerating the minutes for now. We could do that at a later date, after we have refined and nailed down some of the other moving parts here. I don’t think it buys us enough at this time, so I would view that as a refinement that might be made at a later date. Let me leave it at that.

Keyboard shortcuts

j previous speech k next speech