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

Thank you, Mr. Chairman. Like everyone else, I support the policy recommendation of alternative B, keeping the fed funds rate unchanged. I do think that has the best odds of helping the economy meet our dual objectives of maximum employment and stable prices. Financial conditions right now, as several people have remarked, are really quite supportive of growth, particularly in the business sector, but I think that is necessary to offset some of the drag from housing and from business and household caution. The recent indicators, it seems to me, have still a bit of a mixed character. We have one month of strength in capital spending, and we have some industrial production and ISM data, but consumption has definitely slowed down. So to my mind there is still considerable uncertainty, even if it is less than last time, around the output path.

Given that I think things are close to where they were before, I wouldn’t make many changes to the wording from last time. I am comfortable with section 2 on economic growth and “expand at a moderate pace over coming quarters,” unless we add something about uncertainty to the inflation piece, and then I would want to add uncertainty to the other. But I do not think we ought to add the uncertainty language to inflation. I think the combination of that and the “predominant” language, as President Fisher was implicitly pointing out, will send a much more concerned message about inflation. It will say that our concerns about inflation have increased since last time—I really think it would be interpreted that way. At some cost, we obtained some flexibility in how we are characterizing the situation and in our policy expectations by the changes we made last time to the final section. I would keep that final section the same, and I would not do something to undo that, which would be to combine the uncertainty language on inflation and the predominant risk language. I think that the world would see the Federal Reserve as being much more worried about inflation than it was last time, even though the data have been a little better.

On section 3, “core inflation remains somewhat elevated on balance”—one question I asked myself was, if I had a 2 percent target and the latest number was 2.1, should I be much concerned about that, or would I be comfortable with the sentence. I think I am okay with the sentence for a couple of reasons. I’ll come to the “on balance” in a second. One reason is that the latest data on core PCE prices are heavily influenced by those nonmarket components that I’ve denigrated at this table before, and we can be consistent there. The year-over-year CPI still shows some acceleration, much more acceleration than PCE. The market-based PCE shows some acceleration. So the rate is still higher than I am comfortable with, especially when I discount the nonmarket part. The CPI is still pretty high, and I completely agree that inflation is our predominant concern. So I think saying that core inflation remains somewhat elevated is fine with me. President Poole said something about that “we” as a Committee continue with our comfort zone of 1 to 2 percent. For the sake of the transcript, I want to make it clear that the Committee has never chosen such a comfort zone. Several individuals have, and I agree with both President Poole and Vincent that this could get awkward soon—but not yet—and we need to think about it. The Committee does not have a comfort zone. With regard to the phrase “on balance,” I could live with the sentence either way. Unfortunately it’s an ambiguous phrase. I’m not sure how people will interpret it. Was the thought that it would be more hawkish to take it out? I didn’t follow the dialogue between Vincent and Vice Chairman Geithner on what you thought the effect would be of doing the section without “on balance.”

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