[O]ur target is not 7, it’s not 6½, our target is maximum employment, which, according to our projections, most people on the Committee think is somewhere between 5 and 6 percent unemployment, and that’s where we’re trying to get to. The 7, the 6½—these are guideposts that tell you how we’re going to be shifting the mix of our tools as we try to land this ship on a, you know, on a—in a smooth way onto the aircraft carrier.

Toward the end of our lunch I asked, "What's it like to formulate monetary policy?"  [Bill Ford] thought for a moment and gave me a playful response. He said formulating monetary policy is like flying an airplane in low visibility conditions and choppy air. As the pilot, many times you see clouds and not much else. So you rely on your instruments, which are like economic data. The difficulty is half of the readings may be off, and you don't know which half at any given time.

...

Twenty-five years ago Bill Ford equipped me with a useful metaphor of flying an airplane in low visibility as a way to think about my current responsibilities. Will the aircraft glide in for a soft landing? In my opinion, the answer is yes. I believe the current Fed policy abets a flight path of lower but still positive growth with moderate inflation. More turbulence may be ahead. So keep your seatbelts fastened.

A couple of weeks ago I had the very pleasant experience of touring the Boeing F-18 assembly plant and had about thirty minutes in the simulator for an F-18. I must say I'm a lot happier sitting around this table than I am in an F-18! But in the process of trying to land that plane in the simulator of the aircraft carrier, I ended up producing what the instructor called "pilot-induced oscillation." [Laughter] That means finding oneself wobbling first one way and then the other way. And I think we have some of the same concerns about monetary policy.

We don't want to produce a Fed-induced policy oscillation. I think that is part of our concern. In my view we don't have that situation in front of us for the following reason: Policy is really positioned very much on one side at the present time. Adjusted for risk, the federal funds rate is the highest rate in the market. Back in May when we raised it to 6-1/2 percent, some rates were above and some rates were below. The funds rate was pretty much in the middle and there was room for rates to move substantially in either direction. Right now, if we have a resurgence in the economy, there is room for longer-term rates to rise by 150 to 200 basis points without our doing anything. We're not forecasting a resurgence but if that happens, there's lots of room for rates to rise.  I don't think there's much room for the market to take rates lower. Outside of a recession situation, I don't think one could find in the data a term structure more inverted than the one we have now. So it seems to me that positioning ourselves in the middle requires that we ease a bit. There would still be a lot of room then for rates to rise without a move by us, if it turns out that the economy is about to rebound.