Thank you, Mr. Chairman. I agree that we should keep the federal funds rate where it is. I think that’s our best chance of achieving various goals that we’ve all set here, relative to changing it in either direction.
I do think the risks remain unbalanced. I’m in favor of keeping the current section 4. I agree, Bill, that the Greenbook has a gradual reduction in inflation. It includes an implied assumption of a flat federal funds rate and a rise in long-term rates, not of 75 basis points but, rather, of about 50 basis points, I believe. That trend in inflation is still very gradual relative even to the rise in long-term rates embedded in the Greenbook. Moreover, the risks around that trend, so long as the labor markets remain as tight as they are, remain skewed a little to the upside, and the costs of missing are larger if we miss to the upside rather than if we miss to the downside. So I’m very comfortable with continuing to suggest not only that we are focused on inflation but also that interest rates are more likely to rise than to fall, given our focus on inflation. The market doesn’t believe it, but I think that’s where we are. Maybe not in January and I’m not sure about March, but I couldn’t rule an increase out under a plausible set of information. So I’m still very comfortable with section 4, and I think we ought to keep it until some other time. As the statement evolves, we may get away from forecasting our own actions. We’ve been evolving in that direction. But we are where we are, and I think it would be not representative of where the Committee is if we changed it at this point.
I like the Christmas version of alternative B. We do need to indicate to the markets and to the public that we are aware that some data have been just a touch—or, as Governor Mishkin said, a smidgen—weaker than we anticipated. I like the new version because it does home in on production and spending. By implication, the labor markets haven’t been weaker than we anticipated, so I think it’s a more accurate representation. We really haven’t—at least the staff hasn’t—revised down GDP growth very much once you take account of the auto distortion. So I think this is more accurate. I like the fact that it says “slightly weaker” rather than the “somewhat” in the other alternative B. I think that’s more representative. I could live without “than anticipated.” I was asking myself about “and spending had been slightly weaker”—that raises the question “than what?” In truth, it is slightly weaker than anticipated, but the Committee doesn’t have a record showing exactly what we’re anticipating. It is slightly weaker, if you think about the industrial production data, than it was a few months ago. So I think it can stand without “than anticipated.” Thank you, Mr. Chairman.