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

As everyone else has said, there haven’t been enough data to lead us to change our view, and the policy should remain where it is. Alternative B is the right way to go, and—I agree with Governor Kohn—it is the best way to meet our dual objectives. The statement from last time bought us some flexibility, although at some cost—it left a bit of confusion in the market, which we’ve clarified. It is important for us to maintain that flexibility, and so in altering the statement we should think about that. In the first part of section 2, we do have to acknowledge that growth slowed in the first part of this year. It is important to make that change. But because we have made that change, the Chairman’s suggestion seems quite reasonable to me—rather than saying “nevertheless,” just assert that “recent indicators suggest that the economy seems likely to expand at a moderate pace over coming quarters.” I think the Chairman had suggested starting that sentence with “overall.” If people like the phrase “on balance,” we can say “on balance recent indicators suggest that . . .” [laughter] depending on whether we choose to use the phrase “on balance” in the next sentence. On the next sentence, I’m open about whether we use “on balance,” but I would, on balance, go for taking it out because I don’t see the particular benefit at this point of adding in that qualification. In some sense it takes away a bit of our flexibility rather than adding to it. I’m trying to think about the most likely scenarios going forward, and it’s more likely that we might want to remove or alter that phrase than keep it. So from our time-series perspective going forward, it might leave us a little more flexibility not to put it in, but I don’t have a very strong view on that.

As you can see from my comments, I think that we shouldn’t be changing things much. In principle, I’m sympathetic to Gary’s proposal, but this is not the right time to make that change. There is a question about the interpretation of “high resource utilization.” If we take our central tendency discussion, we’re going to see growth around 2 percent or so, clearly below potential. That doesn’t suggest a high level of resource utilization. But given what the Chairman mentioned about likely changes in employment growth, by the time we have our next meeting we may be adding 0.1 or 0.2 percentage point to the unemployment rate, and so it would be 0.3 percentage point higher than we were quite recently, although it’s still broadly at a relatively low level. The change would bring us back to a higher level than we’ve seen in quite a few months. We should just be mindful of that. I’m not suggesting that we take it out, but we will have to think about how to change it because the high level of resource utilization is not going to be there by traditional measures. But most of us think that there is still a lot of potential to sustain those pressures, which may not just be the high level of resource utilization. Thank you.

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