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

Thank you, and thank you for all the comments. On the action, I think we’re clear that we want to stay where we are. I just want to make the observation that for almost a year now we have taken a very steady approach, not only in keeping policy at a given level but in terms of our rhetoric and in terms of our confidence in moderate growth and a slow moderation of inflation. During the period, the markets and the general view have gone up and gone down, and we have maintained a pretty even keel. That increases confidence in the institution, and unless we have a reason to change our view, we should continue to stay on a steady path.

On the statement, let me start with section 4, which I recommend we not change. The response last time was a little noisier than I expected, although I did expect some response. We tried to do a number of things at once. We wanted to retain a balance of risks that emphasized inflation risks, but we also wanted to get away from forward-directing language. We wanted to get away from what I think was an inaccurate suggestion that the next move was certainly going to be up. In some circumstances, for example, we can effectively tighten by simply staying where we are. We also wanted to convey that, given the uncertainty we were experiencing, some more flexibility was needed. So it was a very complicated change to make. I’m not sure what else we could have done. In any case, I think we have the market in sync with our views, and therefore I would be very reluctant to go through that again to change the assessment of risk. So I’m going to demonstrate a very conservative perspective today, which probably won’t surprise you.

On the rationale, I think I’m okay with the second section as it stands. If you’d note the parallel to March, the first sentence essentially indicated that we recognized what was going on in the economy; nevertheless, we expected, based on longer-term considerations and on our thinking about the broad sweep of developments in the economy, moderate growth going forward. This does the same thing. We acknowledge what’s going on. We saw slower growth. We see the housing sector. We’re not blind to current economic developments. Nevertheless, we have good fundamental reasons to think that growth will be moderate. I wouldn’t necessarily reject my own suggestion to put in something about recent indicators, but putting that in does create a transitory kind of sense that we’re looking only at the last few numbers. I think it’s good to project the sense that we have a long view and that we are comfortable with our long view and are staying with it.

I’ve been trying to decide what to do about “on balance.” A couple of thoughts. My inclination after I listened to the conversation—and I would be happy to take a poll or whatever—is to strike it on the following grounds: We are moving from a statement that said “recent readings on core inflation” to one that says simply “core inflation.” The implication there seems to me to be that we’re not referring now to the last couple of months but really to a broader measure of core inflation. So, again, in a conservative spirit, to avoid adding more language, I have a mild preference for dropping the phrase, but I’m open to comment on that.

With respect to the ongoing discussion about the implications of our language for an inflation target, we are going to have to address that. In a moment I will ask Governor Kohn to talk a bit about communications. We will have a chance in our next meeting to talk about the statement. I hope that in talking about the statement we can address issues such as how much detail we should include, how often we should change, and how we should express the balance of risks. Obviously, we won’t be able to nail all of this down, but we will have some opportunity to try to come to a broader view about what the statement’s role would be in our larger communication strategy. That’s another reason to be slightly conservative at this point. But thinking ahead, President Stern’s suggestion about the sentence “Inflation pressures seem likely to moderate over time, but considerable uncertainty surrounds that judgment” might be a place to go at some point. We might want to change the derivative, and instead of talking about the level, we could say that we are still expecting improvement, but that there is a lot of uncertainty about it. That sort of shifts it from level to direction. That might be a solution, if we come to a point at which we are at 2 percent or just below 2 percent. But I just raise that as a possibility.

So in summary, my recommendation is no action and alternative B as written, striking the phrase “on balance.” Are there any comments in particular on the phrase “on balance”? President Lacker?

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