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

Not quite. Now, if I believed in the efficacy of intervention, which I do not, it would not surprise me to be sitting here and observing the sequence of events that Dino has described this morning. Dino is talking about reductions in volatility and related increases in stability. We’re looking at an extraordinarily stable system in which there is a benign response to 75 basis points—or will be. [Laughter] Well, I’m not prone to avoid making forecasts!

The question that I think arises is whether, on the basis of history as Karen points out, we can get through these periods without crises, as a developing literature around the world suggests. If there were a way in which we could move the dollar’s exchange rate down significantly in a manner that had no secondary effects, would we not want to accomplish that? Would we prefer the euro–dollar relationship at this stage to be at 145 instead of 122? The answer is, “Yes, we would.” But we don’t know how to get there. The general presumption might be that we can get there through intervention, but the experience with interventions suggests otherwise. There are some people here who were at the Fed during the Plaza Accord period. I was not, but I was watching from the outside, and I don’t recall a lot of intervention. My recollection was that in February 1985 the dollar and the pound sterling were almost at parity at one point. The situation was like an avalanche waiting to break; and when the G-5 met and released a few statements, the avalanche did break. There wasn’t a great deal of intervention, but it appeared to be extraordinarily successful. That struck me in retrospect as sheer luck. I don’t recall that the G-5 said anything of great significance.

We have a degree of credibility in the Federal Reserve, but I’m not at all certain that if, for example, the Secretary of the Treasury and a number of us started talking in that direction, we would knock the dollar–euro exchange rate down sharply. I hesitate to think of the consequences. If it were easy to do, I would recommend it. The problem here is that there is a wide consensus that this is the time we want the devaluation of the dollar to happen, not later when the economy may be in a weakened structural situation.

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