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

I would say we crossed the border. [Laughter] Well, let me try to summarize. [Laughter] First of all, the economy is still on the course that we have been projecting for some time. A soft landing scenario with some slow but, I hope, decided reduction in inflation seems to be a reasonable expectation. However, there still are significant uncertainties in the forecast, and we’re quite aware of that. I note parenthetically that it’s a good thing that the bond markets aren’t simply parroting our statements. They’re providing their own take, and we should use that information and not necessarily consider it a failure if their views are distinct from ours. So since the situation seems to be on trajectory, I would advocate today not changing the federal funds rate.

With respect to the statement, we did try in the first iteration to make some changes to the assessment of risk. I have some sympathy with President Poole’s view in that, read literally, our assessment of risk admits no possibility that our next move will be down, which I don’t think could be true under any circumstances. However, we have been using this language for a while. We have been clear in our minutes that we do see some downside risk to output. The market, I think, has understood whose statement we are trying to emphasize, our particular concern about inflation, and our willingness to raise rates if inflation doesn’t moderate significantly. Again, although I’m sympathetic to President Poole and I’m trying to think about how we are going to move away from this language into other forms of language, I think, along with Vice Chairman Geithner, that our changing the risk assessment today would send a very strong signal that our discussion has not suggested. That’s why I propose to leave the risk assessment unchanged for today but to take on board the concerns that President Poole has raised about getting it to a perhaps more accurate description of our risk assessments and expectations.

On section 2, the two suggestions that I think have commanded some significant support are, first, President Minehan’s suggestion of using the second section under alternative C and, second, the alternative in the Christmas-tree colors using “although recent indicators have been mixed” in the present perfect tense—“although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters.” I think those are the two that people have preferred. I don’t think it makes a great deal of difference, frankly, but I lean personally a bit toward including the reference to indicators only on the grounds of trying to signal to the market again that we are watching the data, that we are aware of developments in the economy, and that we’re not just taking the statement out and putting a new date on it. So that would be my recommendation—that we use the phrase “although recent indicators have been mixed, the economy seems likely to expand,” and so on. I’d be happy to take comments.

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