Obviously, we are looking at those signals from the market and asking ourselves precisely those kinds of questions. We are not ignoring that. We think we have incorporated our best judgment as to what signals the markets are sending us. It wasn’t that we weren’t paying attention to what the market was saying in late 2000; we just had an excessively optimistic view of what was going on. I would say that three or four months later we were forecasting a flat funds rate going out and the markets were already forecasting an increase in interest rates starting in the second half of 2001. We did not incorporate that market view, and in that case I think our judgment was better. But you are right—it’s not a matter of who wins the horse race. It’s a matter of putting on the table a vehicle that is useful for your discussions. And as we noted in the memo, we thought we would be producing a less helpful vehicle by using those market expectations. We cited a few examples where using the market-based funds rate would have presented an outlook that was inconsistent with our view of the economy. There were times that the market was forecasting a tightening of monetary policy when we viewed the underlying strength of the economy as considerably weaker than the market thought. So if we had taken the market’s view about interest rates with our view about how the economy was developing, we would have produced a baseline forecast that had a tightening of the federal funds rate with the unemployment rate rising and the inflation rate continuing to come down. That did not seem likely to be the most helpful vehicle for organizing your discussion.
As David Wilcox and I noted in our memo, the information content of the staff’s forecast is pretty much independent of the assumed funds rate path. We could write down an infinite number of funds rate paths and an infinite number of GDP, inflation, and employment paths to go along with that. The fundamental information that we would be bringing to the table would be the same in each one of those various simulations. The issue is where you want to begin in terms of the framework on which to base your discussions, and I think that’s a matter of taste on your parts. We’ve tried to address some of your concerns by putting on the table some alternatives, and at times we’ve provided a market-based funds rate scenario. At other times we’ve recognized that many of you might be wondering what the outlook would be if the fed funds rate were held constant throughout the forecast period—that in some sense that could be more helpful in your discussions. That’s where we come out at this point.