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

Thank you, Mr. Chairman. Obviously, I support alternative B. It seems from a policy perspective that our outlook hasn’t really changed. We want to change as little as possible in our statement. My SAT scores in English were much lower than my SAT scores in math, so I’m not going to comment on the issue of the phrase “on balance.” [Laughter] But let me return to the issue that Vince originally raised and that has come out from several of the participants’ perspectives. I think we will soon be facing a very difficult situation. If the forecast comes in along the lines that we expect, which for us is a nice situation in which inflation comes down to 2 percent in the core and looks as though it will stay there—that it’s not just a temporary one-shot deal and that it will go back up again—we’re going to face a very difficult issue in terms of the statement. Unless I have a sense of the consensus on this Committee for what is our ultimate objective for inflation, I’m going to have a real problem. My view of where the number should be is that I lean toward 2 percent because I do think the transition costs are important, although I am concerned about the issue that President Lacker mentioned. We cannot be opportunistic and just change the number because, as I mentioned earlier, that creates actually a very bad expectations dynamic, which has the opposite effect of an automatic stabilizer in terms of what happens to both inflation and output. If the Committee decides that 1½ is a better number, I could definitely live with that. That would make it easier for me to deal with the statement because, if we’re at 2 percent and have not built a consensus on our ultimate objective for inflation, then I’m going to be opposed to saying that inflation is elevated, and that would be an issue. If the Committee does build a consensus that we should be at a lower number than 2 percent, then I would be comfortable with it. The reason I think this is important is that we’ll be forced into a discussion about this.

The problem that will then arise is that, if we have a consensus inside it will not be transparent not to reveal that to the outside. So the issue is that, whether or not we want to, we are going to be forced into a discussion about how we talk about our objectives on inflation, and we have to think very hard about it. We may not be there now, but I actually hope we are because I want inflation to come down. It’s going to be on the table, and it’s going to be complicated because we’ve had trouble building a consensus in the Committee about this issue. But we need to be aware of the difficulties we will face. Thank you, Mr. Chairman.

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