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

Thank you, Mr. Chairman. I, too, favor maintaining the federal funds rate at its current level at this point. As many people have said, the incoming data have been voluminous but not very informative. However, inflation continues to be higher than I’d like to see it and is forecast to remain so for longer than I’d like to see, thus putting our credibility at risk. I am more optimistic than the Greenbook about the possibility for a quicker rebound to potential. But even if you take the staff’s Greenbook forecast, with growth expected to be below trend for at least several more quarters before returning to trend, I’m comfortable with maintaining the current federal funds rate and the implicit firming that doing so would imply as the economy slows down.

Although I don’t think we should raise the fed funds rate today, I do want to put on the table and reemphasize, as several people have, that we need to acknowledge that if real growth rebounds quicker toward trend than is currently forecast, whether in the fourth quarter of this year or the first quarter of next year, then we must be in a position to raise the fed funds rate at that time. I happen to put more probability on that being the case than perhaps some do. A failure to do that or to signal that we will do that would put considerable upward pressure on the inflation outlook and on the public’s perception of our commitment to price stability. Of course, if we begin to see much larger spillovers from housing corrections or from other sectors, which I don’t think we will, we may want to allow the nominal funds rate to decline as the equilibrium market rates decline—again, not to exploit a Phillips curve type of tradeoff but to drive the real rate down at the appropriate time. But that would also be signaling that we are content with the current level of inflation, and I don’t think we are at this point. So I don’t think that’s really in the cards. Given the outlook, I see not much to be gained and much to be lost from lowering the fed funds rate, as many people have indicated.

In regard to the language, I lean toward alternative B, but I must confess I’m still a novice at the nuance of some of this language stuff, and I go back and forth. I am sympathetic to the view expressed by President Minehan and to Bill Poole’s comments about the words “than anticipated,” but I am concerned about section 2, and I have some mixed emotions about it. It seems to me that the way section 2 is currently being construed is a bit asymmetric. President Yellen was making this point. We talk about the weakness that we’ve seen, and then we make a comment that says, “But we expect growth to be moderate.” That seems to me to be an asymmetric treatment of what we’ve really been talking about. If we’re going to be explicit about where we’ve seen weakness, then we also ought to be explicit about why we still see growth as being moderate because otherwise you see only one side of the coin. Whether we talk about strength in the labor markets or strength in consumer spending, it seems to me that we need to balance the statement; otherwise the section doesn’t make a lot of sense to me.

Now, as I think through that, I become more and more attracted to President Hoenig’s view that maybe the less we say the better because saying more requires more explanation. In general, I have somewhat mixed feelings about the language issue. I tend to think that we ought to change the language of the statement more often rather than less often because putting in a new word is always excruciatingly painful and understanding the nuances of what we’re trying to convey to the market is very difficult. One alternative is to be much more eclectic about what we say and either use the minutes to explain it further or not. I don’t know that I would necessarily advocate doing that, but I think that we need to think about using the language in the statement in ways that perhaps don’t lock us into things in the way the language currently does. That’s my observation. Thank you, Mr. Chairman.

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