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

Thank you, Mr. Chairman. I’ve again had some discussions with contacts in the banking sector in preparation for this meeting, but they tend to reflect the comments that we’ve heard around the room, particularly Governor Bernanke’s observation that the economy’s growth is solid but less vigorous than expected. Certainly, nothing I’ve heard from those I’ve talked with in the banking sector would be different from that.

As the one member of the FOMC who has spent a lot of time as a political operative, I couldn’t help but think about today’s meeting in the context of the fact that the upcoming presidential election is six weeks from today. I was reflecting on the concerns that have become issues in that contest and those that haven’t and the implications they might have for the economy. The deficit levels and spending restraints have not become issues. We didn’t expect that they would. Social Security, Medicare, and Medicaid also have not become political issues, but I think concerns about them have been elevated during the course of the campaign, not by either party but by interested observers—not the least of whom is our Chairman as well as Pete Peterson and others. Just as we were talking earlier about our prospective role in discussions about the dollar, I would suggest to members of this Committee who have concerns about deficit spending, Medicare/Medicaid issues, and certain tax policy issues, that the time to elevate those discussions is immediately following the point when it becomes clear who the next President will be. I hope that will be right after the election this time! [Laughter]

To the extent that James Carville’s admonition that “it’s the economy, stupid” is correct, there seems to be minimal differentiation of the economic issues this time. The most aggressive protectionists were given early exits from the process. We do hear talk about tax policy and about outsourcing, but the one issue that seems to resonate is economic uncertainty. The solution for that is not clear, which does not suggest that it isn’t a problem just because a solution is not evident. But, importantly, monetary policy has not been a political issue. For the three years that I’ve been either on this Committee or thinking about being on this Committee, I’ve wondered about the extent that it would be as we moved into this time frame and came into this meeting. The question to my mind was never whether the FOMC would allow political pressure to interfere with its decisions on the appropriate monetary policy—I was certain it wouldn’t—but the opposite. The question was whether the implementation of appropriate monetary policy would become a political issue.

Mind you, today’s statement will be examined very carefully for political advantage, and attempts to gain that advantage will be made. But almost certainly there will be none, I think for two reasons. First, the general sense of the appropriate implementation of our policy ensures our credibility, and second, there is the clarity of our communication. Now remember, the communication can work only if the first part is accurate. During the last several years, we have gone from being accommodative, to being accommodative for a considerable period, to a time of patience, to removing accommodation at a measured pace. And moving from accommodation toward a return to neutral at a measured pace is not only the appropriate policy, but it will be, in my view, not at all a political issue.

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