I think the economy has slowed considerably. My own forecast for the first half of ’08 is a rather slow economy.  I think what’s happened recently is that the data that have come in in the last few weeks on the end of the 4th quarter of last year have suggested more weakness.  I think the challenge is going to be, going forward, is to thinking about what data comes in and how that’s affecting our forecast going forward. So I am certainly open to that [additional interest-rate cutting] and there is a lot of uncertainty right now about the economy.

I think we need to use a multipronged approach to help reduce the downside risk to the real economy.

From remarks as delivered, as reported by Market News International

Stable expectations allow us if we so choose to go slow with policy adjustments because when the evidence comes in we can catch up. Or, if we respond too much from a Monday morning quarterback standpoint, we don't create any lasting problem, because inflation expectations are entrenched and therefore the market doesn't run away with expectations.

From press Q&A, as reported by Market News International

"I'm not trying to put a gloss and say the economy is great," Poole said. "I'm trying to say the data to me are not clearly decisive on the downside" and "I would say the uncertainties are probably greater."  He added views about the outlook both within and without the Fed are "more diverse than typically the case."

...

The circumstances that we would see to justify a substantial policy easing would be the same as the people in the markets would see ... Having said that, keep in mind that interest rates have already come down quite a bit so given the lags in the process we would have to make a judgment about how much more would be appropriate given the new information.

From Q&A session as reported by Market News International and Dow Jones News

Consequently, we must remain vigilant on the inflation front and be prepared to act as necessary to avoid the risk of undermining public confidence in the central bank’s commitment to price stability.

I am still optimistic that the economy will improve appreciably by the third and fourth quarters of 2008, and that is when any monetary policy action today will begin to have noticeable effects. Overall real GDP growth will be faster in the second half of 2008 as the economy begins to return to its longer-run trend growth of about 2-3/4 percent. On a fourth-quarter to fourth-quarter basis, I expect that the economy will grow about 2.5 percent in 2008, close to its pace in 2007, and that it will be growing more consistently near its longer-term trend in 2009.

The introduction of the TAF was aimed at addressing the Fed’s objectives for financial stability, not its objectives for monetary policy.

Going forward, we must be careful to distinguish when financial conditions call for Fed actions to help markets function effectively, such as we are now seeing with the Term Auction Facility, as opposed to situations when a change in the overall stance of monetary policy is called for.

Somebody asked me today was I open to rate cuts, further rate cuts in the future. Absolutely, I'm open to those.

From press Q&A session, as reported by Market News International

It is important to recognize that providing more information on our forecasts does not represent a new way to do policy. Rather, it helps clarify what the Committee is focused on. It also makes more explicit that the Committee is looking forward, does have a plan to pursue its dual mandate, and is attentive to situations where the risks to its forecast may be unusually large or asymmetric.

In September, the Committee reduced the federal funds rate target by 50 basis points, and in late October lowered the target by another 25 basis points. These actions reflected the Committee's concern that the financial shock had the potential to intensify the housing correction and thereby to restrain economic growth more generally. The steps were meant to help forestall some of the potential fallout to the economy from the disruptions in financial markets and to promote moderate growth over time.

In line with the forecast-based policy I've described, the Committee's decisions reflected a forward-looking and preemptive approach. In particular, I supported putting a substantial easing in place so as not to fall behind the curve. Given the long lags between policy actions and their impact on the economy, and the possibility that economic downturns can be difficult to reverse once they take hold, an approach that was more gradual and reactive than this would have created unnecessary economic risks.

When the Fed cuts its target for the federal funds rate, market participants know that the FOMCs decision at its next meeting will be either to leave the rate unchanged or to cut further. Barring unusual circumstances, the FOMC would not consider a rate increase just after cutting its fed funds rate target. This approach to policy is appropriate when market conditions are fragile because market participants must be confident that they can take positions without the risk that the Fed might raise rates, which would reduce asset values, in the near term.

The FOMC noted on October 31 that "economic growth was solid in the third quarter, and strains in financial markets have eased somewhat." However, the committee added "the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction." The committee believed its October 31 policy action, combined with its action taken in September, "should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time."

As discussed a moment ago, my view of the economy is consistent with the FOMC statement, and I supported last week's policy action. In part, my position was based on the notion of insurance against downside risks to the general economy given the unusually high level of uncertainty.

[T]he Federal Reserve has a responsibility to take monetary policy actions to minimize the damage that financial instability can do to the economy.  I hope I was clear in communicating to you that policies to achieve this goal are designed to help Main Street and not to bail out Wall Street.  Pursuing such policies does help financial markets recover from episodes of financial instability, and so it can help lift asset prices.  But this does not mean that market participants who have been overly optimistic about their assessment of risk don't pay a high price for their mistakes.  They have, and that is exactly what should happen in a well-functioning economy--which, after all, is what the Federal Reserve is seeking to promote. 

I noted a moment ago that periods of financial instability are characterized by valuation risk and macroeconomic risk. Monetary policy cannot have much influence on the former, but it can certainly address the latter--macroeconomic risk. By cutting interest rates to offset the negative effects of financial turmoil on aggregate economic activity, monetary policy can reduce the likelihood that a financial disruption might set off an adverse feedback loop. The resulting reduction in uncertainty can then make it easier for the markets to collect the information that enables price discovery and to hasten the return to normal market functioning. To achieve this result most effectively, monetary policy needs to be timely, decisive, and flexible. Quick action is important for a central bank once it realizes that an episode of financial instability has the potential to set off a perverse sequence of events that pose a threat to its core objectives. Waiting too long to ease policy in such a situation would only risk a further deterioration in macroeconomic conditions and thus would arguably only increase the amount of easing that would eventually be needed.

The combined 75 basis points of policy easing put in place at the past two meetings should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and should help promote moderate growth over time.

Going into the meeting, I was comforted by the lack of direct evidence to date of serious spillovers of the housing weakness and of tighter credit conditions on the broader economy. But with an unchanged policy interest rate, I saw downside risks to the outlook for growth. I was mindful, in particular, of the risk that still-fragile financial markets could be particularly exposed to potential adverse news on the housing situation, or on the macroeconomy more generally, and that renewed strains in financial markets could feed back adversely on economic performance. My vote to ease policy at the meeting was motivated by my wish to reduce those risks. The FOMC perhaps could have waited for more clarity and left policy unchanged last week, but I believe that the potential costs of inaction outweighed the benefits, especially because, should the easing eventually appear to have been unnecessary, it could be removed.

In voting to ease policy, I carefully considered the effect of that decision