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.

But, as I have noted previously, while time preference may appear to be relatively stable over history, perceptions of risk and uncertainty, which couple with time preference to create discount factors, obviously vary widely, as does liquidity preference, itself a function of uncertainty.