The notion...which came out...a couple of weeks ago that there was a significant move towards selling off U.S. dollar instruments by foreign central banks, that actually was not accurate. The extent of holdings remains very heavy for dollars. It's a share of their aggregate holdings.

It is possible that the decline of the dollar changes the competitive landscape and makes foreign producers less competitive, and that could be inflationary.  But as long as the Fed pursues a low inflation policy, we should achieve low inflation.

Given the dollar's depreciation since 2002, U.S. exporters' profit margins appear to be increasing, which bodes well for future U.S. exports and the adjustment process.

We may be approaching a point, if we are not already there, at which exporters to the United States, should the dollar decline further, would no longer choose to absorb a further reduction in profit margins.

It (weak dollar) doesn't need to pass through to the overall underlying inflation rate and as a result I'm confident that our economy and our policy apparatus is resilient enough to respond to the evolution of the foreign exchange value of the dollar.

The declining value of the dollar, combined with reasonable growth in the economies of our trading partners, should help stabilize our net export position in 2005. As the trade deficit stabilizes, solid growth in spending by U.S. consumers and businesses should translate directly into solid growth in GDP.

Clearly the trade situation is an imbalance that has to work its way out.  The movement of the dollar in the past several quarters will take time to work through the economy and improve our competitiveness...It'll also put some pressure on the stability of prices as imported goods become more expensive. But at the end of the day we must realize that the U.S. economy is still dynamic...the U.S. economy is likely to continue to be a place of where capital allocation continues from abroad to the U.S.

The recent decline in the value of the dollar may lessen the competitive pressure on domestic producers that has until now limited their pricing power.

[The dollar's weakness] is not a crisis or a concern at this point, it's a matter of working through the dynamics of the previous price movements.

The prospect for where the dollar is going to go is completely uncertain...I do not see that the weaker dollar has had any significant impact on the aggregate economy or on the stability of financial markets, or any sort of fallout effects of that sort.

Core inflation picked up about a percentage point in 2004, reflecting the pass through of rising oil and gas prices into core goods and services which use energy as an input to production. The decline in the dollar may have also contributed, though our estimates suggest there has been a very limited pass-though from this channel.

Output growth next year should also be helped by a reduction in the drag from net exports. Although exports will be dampened somewhat by moderating growth among our major trading partners, the recent fall in the dollar ought to support export growth and contain imports as well. On the other hand, the declining fiscal policy impetus and the likely downward trend in housing starts will both detract from output growth.

Monetary policy is capable of preventing oil price increases, or changes in the foreign exchange value of the dollar for that matter, from showing through to the underlying inflation rate.

MS. FOX{of the FOMC secretariat}.  Thank you both for saying that. I think everybody already has said the right thing, which is to refer monotonously to this public statement--to use those words over and over.  They become a mantra and then everyone gets the same story all the time.

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CHAIRMAN GREENSPAN. Let me make one comment about the mantra issue. Bob Rubin used the mantra about the strong dollar to a point where all of us who had to sit and listen invariably cringed more and more as the weeks and months went on. It turned out to be exactly the right policy approach because what happened was that by not varying the statement, an issue never arose about whether a comment involved a subtle change or not in the policy toward the dollar. It was boring, it was dull, it was repetitive, it was nonintellectual, and it worked like a charm. So I would suggest to you that your inclinations to be thoughtful, conceptual, and interesting be suppressed.

With the welcome recovery of foreign economies and with the leveling out of the dollar, these factors holding down demand and prices in the United States started to unwind. Strong growth in foreign economic activity is expected to continue this year, and, other things equal, the effect of the previous appreciation of the dollar should wane, augmenting demand on U.S. resources and lessening one source of downward pressure on our prices.