Thank you, Mr. Chairman. Let me start at a little different place than you did, but I’ll come back. When I came in this morning, I had been thinking about how to assess the potential costs of lowering rates when in retrospect that proved not to have been necessary or desirable versus the costs of not lowering rates when in retrospect we wished we had done so sooner. I must say that on that calculus I think the costs of delay are greater at this point. It seems to me that if we were to ease policy today and in retrospect that turned out not to have been necessary or desirable, I’d be quite happy. That’s because we’d be dealing with a situation in which the economy is stronger than expected and coming along nicely and that would be occurring in an environment where the inflation environment is very stable. So I don’t think the costs of dealing with that would be all that high.
With regard to market expectations, we have quite an unusual situation. I haven’t gone back and looked at the data, but I think in our history of recent years it is quite unusual to have a very high probability of a future action built into the market but no action built in for the current meeting. Second, as the first page of graphs in front of us shows very clearly, as of the end of March or early April the market had built in a high probability of a change in May but now has taken that out. So in terms of market expectations, we’re dealing with an unusual circumstance. I believe the market is going to interpret the language “The Committee believes that, taken together, the balance of risks . . . is weighted toward weakness” as code, if you will, or a forecast that we are highly likely to cut rates at our next meeting. The question will arise immediately as to whether the cut is likely to be 25 or 50 basis points. That uncertainty will arise and will be discussed right away. So to some extent not acting today but putting in this language will surprise the market in the same way that the market would be surprised by an action today. It’s not as if we totally avoid that market surprise.
I view this as a perfectly satisfactory solution because, if the market has a high degree of confidence that a change in rates is coming, in terms of the effects of monetary policy it doesn’t really matter very much whether that change comes now or six weeks from now. The term structure is affected almost exactly the same way except for the very, very short-run maturities. That six-week interval can’t make any difference for a ten-year bond. So I think this is an acceptable way of making it clear that we are very likely to be easing policy unless we see a lot of evidence that the economy is picking up steam.