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

One possibility would be to say that the markets might believe that we will be perfectly okay with inflation continuing to run 2¼, 2½, or something like that. That is a possibility. But the way I would look at it is that the market would probably believe that we would be just holding the fed funds rate target constant in that situation. To have a market forecast of a declining fed funds rate, which is what’s in the bond market, it seems to me that you have to be anticipating that rates will come down. Now, I think that can’t be a recession outlook because otherwise the equity market wouldn’t be as strong as it is. So that’s why I came to that conclusion. One market or the other may be making a mistake, but I was saying that’s what I think is the best explanation of what the market sees.

Keyboard shortcuts

j previous speech k next speech