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

First, I want to congratulate David on the excellent memo on inflation dynamics, and I hope that we can circulate it more broadly to the academic community so we can enrich that debate. It was a superb paper. Karen, you know how much I appreciate your comments on the inflation dynamics that you’re seeing in other countries. I have a question on that front—really two questions.

First, in listening to the people that we talk to in the energy business, whether it’s Lee Raymond or all the operators of the various companies from Exxon down to the smaller ones, I still hear the issue of how much of this price reversal—just as there was an issue of how much of the price increase—derives from speculative activity, nonphysical demand. To summarize what I heard over the past week or so, my contacts assert that the speculators have shifted to the short side of the boat—so that we have seen this tilt. I’m wondering how much influence you ascribe to speculative activity as opposed to physical demand and supply activity. I know we’ve had this discussion before, but has speculation accelerated the downturn, or is there something else at play?

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