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

Well, in contrast to some people here, actually I’m quite comfortable with the Greenbook forecast as to the most likely path of inflation. I am more troubled about what is further out beyond the policy horizon. I think that the most likely path of inflation is to hit 2½ percent on the CPI and stay there, which is correspondingly around 2 percent on the PCE deflator. So I do have some discomfort there, but I do not think that pursuing something like B+ or raising rates at this time is the right way to deal with this problem. How we manage expectations really is an issue, and we can’t do it with the apparatus we have now. I am very much looking forward to the discussion of communications at the next meeting [laughter] because I think the issue here is our overall strategy about monetary policy. We have to think about how we put it all together in terms of what we do at a particular meeting and in terms of how we manage expectations going forward.

So at this particular juncture I am very comfortable with B. I think that the right way to express the fact that we are uncomfortable with the current rate of inflation and with what will happen more than two years out is to do it through the minutes. I am sure the minutes will show that the sentiment of the Committee is that we’re not comfortable with having a situation in which, if inflation does not moderate along the lines of the Greenbook, we keep rates the same. In that context, we would likely have to raise them; or if the economy weakens somewhat and inflation does not decline the way we hope it will, we might actually have to maintain rates at the current level longer than the market might otherwise expect. So we can do it that way at this stage, and we’ll just have to see where the Committee comes out in thinking about how we manage expectations in the future. Thank you.

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