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

Thank you, Mr. Chairman. If you step back from the discussion and just think about the policy position, we’re in a difficult position because inflation continues to run higher than most of us think is appropriate but economic activity seems to be in a soft patch, as you said in your summary of the comments, Mr. Chairman. I think alternative B—keeping the fed funds rate at 5¼ percent and the language—is the appropriate one for today. If we were to take the suggestion of using the sentence from alternative C about considerable uncertainty surrounding the inflation judgment, how would the markets interpret this change, regardless of how we meant it? I think the markets would immediately interpret it as less emphasis on inflation from our standpoint. I think they would also say, “Well, there’s now more uncertainty, or the FOMC sees more uncertainty today about inflation than it did at the last meeting.” I don’t think either statement is accurate.

If we delete the phrase “high level of resource utilization,” they will say that we’re less concerned about high levels of resource utilization than we were before. We’ve had this phrase in the statement for a long time. At some point we want to take it out, but when we do the change to the statement would be very significant. I wouldn’t do it until we felt that, in the context of looking at the overall statement in a very careful way, making that change had some major benefit. There is a virtue in making few changes in the statement unless we have a specific objective in mind or a specific message. So I would strongly oppose making that change in the statement. On the phrase “on balance,” I guess I was persuaded by Vincent’s description that this helps us give the impression that we’re smoothing through the recent data. So on balance, I would keep “on balance.” [Laughter]

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