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

Mr. Chairman, based on my assessment of the economic outlook, I think we should maintain the funds rate at 5¼ percent, which as others have said is modestly restrictive, and I counsel what I would refer to as rational patience here as we work through this. I continue to hold the view that the current policy stance, along with the lagged effects of past tightening, will lead to a moderation of inflation going forward—and that does not deny that upside risks to inflation do, in fact, remain.

Just quickly, I would like to say that I think credibility is extremely important for the Federal Reserve and that we risk the issue of credibility much more when we are at 1 percent than when we are at 5¼ percent, which is where we are now, in terms of upside inflationary risk. We are moderately restrictive, and we do not want to overreact. With that in mind, although there are also downside risks to growth, I want to be very clear to the markets and to the public that any near-term easing in policy is not likely. Indeed, I believe, first, that we should maintain our current policy stance until we see evidence of significant systematic declines in inflation. We should make that clear. Second, if we get evidence that inflation is not moderating, I would be prepared at that point to support additional tightening; but I think we should have that evidence before we reengage in any policy tightening.

On the press statement, I am in favor of B+. We should be very firm about our inflation position and about our commitment to bringing inflation down. We should not overreact; and with the moderately tight policy that we have now, we can see inflation come down systematically over time. Thank you.

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