First, it [gradualism] guides the economy in a particular direction but probably will not allow policymakers to overshoot the goal. Second, by moving slowly, policymakers have time to assess the effects of their actions on the economy and update their views on what further action needs to be taken.

As Chairman Greenspan has explained, monetary policymaking is risk management. The case for gradualism rests on the assessment that the cost of taking too large of an action is larger thn the cost of taking too small of an action. However, the story does not end here. While it is true that moving in a gradual manner reduces the chances of overshooting with all its attendant costs, the policymaker cannot afford to be consistently behind the curve. Given that monetary policy affects the economy with long and variable lags, there is a chance that by acting in this attentuated fashion we will undershoot the optimal policy stance. This can be at least as costly as overshooting. Our challenge is to weigh these costs and respond appropriately to the data and attendant risks involved. Our experience during the most recent business cycle underscores the need to be flexible in choosing the speed with which we respond to unfolding economic developments.

You once said, Mr. Chairman, that we always make one move too many.