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

Thank you, Mr. Chairman. I think the statement has been evolving sensibly. The process is basically working. I don’t think we need to lock ourselves into any fixed view of the optimal structure of the statement over time. We should be open to changing it if it suits our purposes in specific circumstances. Obviously, shaping expectations about the stance of monetary policy is a vital part of what we do. I’m pragmatic on all the questions about whether or not to have forward-looking language. There are some circumstances in which it may make sense in the future as it has in the past. Those should be exceptional circumstances, and using it should be done very carefully and thoughtfully. But we do not need to commit not to use it. I also think the basic structure of saying something implicitly about the forecast, the outlook on which our decision is based, is very important. So we should have something in there that refers to the expected path of output and inflation and the risks to that generally as part of the signal. Without that, you’d lose a lot of value. I think I’d still be open to experimenting further as we have been doing with introducing a bit more forward-looking view about the outlook for demand and inflation as part of the statement, even though that will be hard to do well.

On governance, I have a very different view. I think that we really should stay in this governance limbo that we now have. It’s very important to recognize that we’ve had a huge amount of turnover in this Committee. It’s important to give the Chairman the flexibility to ultimately be the arbiter of the nuance in the statement without having to go through a process in which he will have to figure out whether he’s prepared to have a vote with significant dissent in that context. Right now we have a process in which the Committee has substantial input into the shape of the signal that’s in the statement. The minutes actually say that the Committee agreed that the statement should say X. It’s clear that the Committee is implicated in the statement. The Chairman is obviously very deferential to the views of the Committee in shaping it, but we’re close to 80 percent of the way in having a formal endorsement by the Committee of the statement. I don’t see any virtue in going the next 20 percent and a lot of virtue in preserving the possibility for the Chairman to say, “My sense is that we should do X,” (I know that’s not acceptable to all of you) and not have that come with something that forces a vote in that context. I just don’t think the balance we have now is problematic, but I can envision a circumstance in which the state of the world, the state of the Committee, or a bunch of other things might make a formal vote unnecessary and tilt the balance in a way that may not make sense for the institutional structure we have. You know, we have a group of nineteen, not of seven. Fundamentally the Fed model institutionally is based on a strong Chairman, and I’d preserve that particular remaining piece of that model.

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