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

I just want to mention—I don’t know if this is true of other people— that I had two big problems when I was doing this dry run. So though it will come out in the survey, I have a feeling that other people might have views on this. One problem was that I really had difficulty thinking about the confidence interval because I didn’t feel that I had enough background from the staff about how to think about it. It’s not your fault because we didn’t ask you to do it. But here is my problem. I knew what the Greenbook errors were in terms of the confidence interval. I knew what the FRB/US confidence intervals were, and then there was an issue about how to think about them. I think there are things we can say about that. For example, in the context of the FRB/US, we don’t assume any model uncertainty. So the issue is that you think some more uncertainty might exist for the FRB/US errors, but then, there are problems with the Greenbook forecast errors, which display greater uncertainty than the FRB/US errors. So if we had a memo to really think this through, it might provide a lot of background for us to think about how we do this. We might need to do that before we go into the next dry run, so we can have some discussion about that.

The other problem in figuring out what to write down is the issue of appropriate policy, which is central. Again, as relates to the issue that we just discussed, I use an appropriate policy of a 2 percent inflation goal because I think that’s one that I’m comfortable with. It’s also consistent with what I think revealed preference has been on this Committee in terms of the policy actions we’ve taken. However, I would also be comfortable if the Committee built a consensus of 1½ percent. Then I would have had a different view in my projections because I would have felt that the policies in that case would be different. So there is a question mark about how to think about that in the future because it is the gray area that makes this exercise more difficult. We do need to think about it. That’s what I struggled with when I sat down and asked, “How am I actually going to do this?”

Keyboard shortcuts

j previous speech k next speech