The point is that while I feel the most important role for a central banker is to maintain price stability – and I am always on watch, hawk-like, on the inflationary front – I share with equal intensity the concern of my FOMC colleagues about the employment picture and the overall fragility of our economy. I am keen on finding ways to close the income and output gaps depicted in these two slides and restore economic momentum. I find the last employment report and the recent Federal Reserve Bank surveys of activity, including the Dallas Fed’s, to be discouraging in this regard. When people are frightened, they understandably look for a “fix.” Yet, my colleagues and I are professionally beholden to beware of short-term fixes that might contradict, or place in jeopardy, the long-term duty and credibility of the central bank. I am wary of adopting any policy that might have the unintended consequence of becoming a veterinary fix rather than a more salutary repairing of the ability to propagate jobs. It is no secret that I thought the second round of quantitative easing (QE2) ran that risk. I could not support it when it was proposed because I saw no analytically sound justification that its purported benefits would outweigh its likely costs.
I am pleased that Dick Berner, a former NABE president now at Treasury, running the Office of Financial Research, is here. I believe it was Dick who, during a round of golf at Jackson Hole [Wyo.] long ago, told me the bad joke about the fellow who suggested that a moose crossing sign be moved because “there is too much auto traffic where the sign is currently located.” I also see Bill Dunkelberg, another former NABE president, who has been most generous in sharing with me and my staff his understanding of the whys and wherefores of small business, an important input into the way we look at things at the Dallas Fed. There are many others here today whom I would acknowledge if time permitted, but I ask their forbearance so that we can get down to business. As learned economists, you are fully aware of the nation’s predicament. Chairman [Ben] Bernanke reviewed it concisely in his speech at Jackson Hole and again, just last week, in Minneapolis. Knowing that most of you read those speeches, my guess is that you are looking to me for two things today. The first, given that you are in Dallas and the nation is in the throes of a presidential election season with two Texas contenders for their party’s nomination, would be the Dallas Fed’s perspective on the much-discussed Texas economy.