Thank you, Mr. Chairman. I think the pause initiated back in August is paying dividends. We’ve been able to gather valuable economic intelligence at no discernible cost to FOMC credibility. Given the recent signs of weakness in economic activity, I do think the downside risk to the outlook has intensified. A further rate increase at this time would unnecessarily increase the odds of a much sharper and more-damaging economic slowdown. Even though inflation has shown some signs of moderating, the risks to a gradual decline in inflation remain clearly biased to the upside. Weighing these two risks, I still see inflation as the predominant risk, and therefore, like Governor Kohn, I am comfortable with the risk assessment in section 4 as it stands.
I think we’re entering a critical phase for policy. Inflation may not come down as desired, and a further rate increase may be needed or, hard as it is to imagine, market participants may end up being right that the economy will slow much faster than we anticipate and call for rate cuts. We need to be in a position to react quickly and flexibly to change, whatever the circumstances may be, and I think alternative B accomplishes that because it accurately reaffirms our concern regarding inflation while it leaves our options open.
With respect to language, my first choice, like President Minehan’s, would be to use the language for section 2 in alternative C. It omits any reference to recent data or to what we anticipated and simply adds the word “substantial,” which I regard as a nod to recent data that suggest a greater slowing in housing. My second choice for section 2 would be to use the substitute language in the Christmas-colored exhibit 5. I also support President Minehan’s suggestion to omit any reference to what was anticipated because I agree with her and with the point that President Poole made before our meeting—that referring to differences from what was anticipated simply raises the questions of who forms the anticipation, what the anticipation was, and when it was formed. In addition, I think it’s a bit misleading because, although some recent data on the spending side have been weaker than we may have anticipated, we’ve also had data from the labor markets that have been stronger than we anticipated. So I fear that alternative B, section 2, leaves the false impression that we have significantly revised downward both our view of the outlook for growth and, accordingly, our estimate of inflation risks.