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

Thank you very much. My assessment of what’s going on vis-à-vis our policy stance is that we’re facing, as I think most people have acknowledged around the table, pretty much the same ideas that we were facing at the last meeting about the best baseline forecast going forward; but the risks on both sides have gotten a little deeper. On the growth side, the issues have to do with the depth of the housing market contraction, the spillover to motor vehicles, and the possible expansion of weakness to other sectors, particularly on the goods manufacturing side. However, I would mention, though nobody else has around this table, that some of the slowness in high-tech spending seems to be related to people’s waiting to buy new computers when the new software from Microsoft comes out. I think that perhaps a little window of optimism exists there; certainly, it seemed that way to our director who is in the semiconductor industry. You have some greater risks on the minus side, and you have all the risks that Brian talked about on the plus side—more-accommodative financial markets, a dollar that’s declining, strength in labor markets, and an ebbing of core inflation that’s still more of a possibility than a reality. But I see the risks on both these sides as not affecting where policy should be. I don’t think the risks are unbalanced right now. They may have gotten a little deeper on both sides, but I don’t see them as unbalanced. This policy stance is right, for now. I think it’s at the high end of neutral and focused on where it’s more expensive to be wrong and that is on the inflation side. If inflation fails to decelerate, if the promise is not realized, then obviously policy won’t be slightly restrictive as it is now, and we’ll have to tighten. If we see some of the bad signs on the growth side confirmed, then we’ll either need to stay the course for a while, as President Hoenig has suggested, or possibly reduce rates along the lines of the market. But for right now, we’re right where we need to be.

I’d go with alternative B. But I’d either go with the Christmas colors with “than anticipated” taken out, or as I am attracted to President Hoenig’s idea, I’d go with fewer rather than more words. My preference is to take section 2 from C and marry it to the rest of alternative B—it has fewer words, and it doesn’t point specifically to weaknesses. President Fisher is right that A and B may be better descriptions of some of our worries around the table, but they could feed in a not necessarily good way into the markets right now. Section 2 in alternative C would be a crisper, shorter way of not confirming the federal funds rate trajectory that markets see as they look forward. I’d rather not confirm that trajectory. So if I had my druthers, I’d go with alternative B with section 2 from alternative C. Otherwise, I’d take “than anticipated” out and go with Christmas colors on alternative B.

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