The use of "fan charts" to indicate the range of uncertainty would be helpful in this regard[forecasting future Fed policy]; and indeed, providing more information about uncertainty for all FOMC forecasts would be a useful innovation.

Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape.

Considerable uncertainties--about the progress of the adjustment of capital spending and the rebound in profitability, about the potential for additional revelations of corporate malfeasance, and about possible risks from global political events and terrorism--still confront us.

The uncertainties surrounding the current economic situation are considerable, and, until we see more concrete evidence that the adjustments of inventories and capital spending are well along, the risks would seem to remain mostly tilted toward weakness in the economy. Still, the FOMC opted for a smaller policy move at our last meeting because we recognized that the effects of policy actions are felt with a lag, and, with our cumulative 2-3/4 percentage points of easing this year, we have moved a considerable distance in the direction of monetary stimulus. Certainly, should conditions warrant, we may need to ease further, but we must not lose sight of the prerequisite of longer-run price stability for realizing the economy's full growth potential over time.

While technology has quickened production adjustments, human nature remains unaltered. We respond to a heightened pace of change and its associated uncertainty in the same way we always have. We withdraw from action, postpone decisions, and generally hunker down until a renewed, more comprehensible basis for acting emerges. In its extreme manifestation, many economic decisionmakers not only become risk averse but attempt to disengage from all risk...But even when decisionmakers are only somewhat more risk averse, a process of retrenchment can occur. Thus, although prospective long-term returns on new high-tech investment may change little, increased uncertainty can induce a higher discount of those returns and, hence, a reduced willingness to commit liquid resources to illiquid fixed investments.

Every forecaster must cope with how best to convey not only what he believes to be the most likely outcome in the forecast, but the uncertainty around that forecast. No method is perfect, but the fan chart has a number of favorable characteristics. It encompasses in one picture not only the most likely outcome, but the growing uncertainty about that outcome as one moves into the future, and any sense that the risks around the outcome are skewed more in one direction or the other. And comparing fan charts between Reports can convey shifts in uncertainty and risks over time, as well as changes in the central tendency.

Regardless of what you use as your indicators or your proxies, I think that one way or another we have to try to project an underlying forward-looking consistency in policy that ultimately overrides all this noise.

Back in the days when I was learning economics and central banking, the General Theory had cast fresh light on old problems. The intellectual contributions were immense. But popularized, bowdlerized, and pressed to extremes, it lost fashion for good reason.

The monetarists – emphasizing old truths in modern clothing – have provided a large service in redressing the balance. It is in pressing the point to an extreme that the danger lies – the impression that only money matters and that a fixed rate of reserve expansion can answer most of the complicated problems of economic policy.

In a way, I suppose full confidence in a simple, unified view of economic policy is a comforting thing: a kind of security blanket in an uncertain world. But Alfred North Whitehead, in a different context, once pointed to the danger: “There are no whole truths; all truths are half truths. It is trying to treat them as whole truths that plays the devil.”

He overstated the case. The practical man cut adrift from our sense of what is the greater truth – distinguishing, if you will, the one-eighth truths from the seven-eighths truths – will soon lose his way. But in assessing those truths, he can never afford to lose sight of the messy reality of the world in which we live.